UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                  ANNUAL REPORT

                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002       Commission File Number 0-12050

                       SAFEGUARD HEALTH ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                              52-1528581
     (State or other jurisdiction of     (I.R.S. Employer Identification Number)
     incorporation or organization)

                            95 ENTERPRISE, SUITE 100
                       ALISO VIEJO, CALIFORNIA 92656-2605
              (Address of principal executive offices)  (Zip Code)

                                  949.425.4300
              (Registrant's telephone number, including area code)
                                  949.425.4586
            (Registrant's fax telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $0.01 PAR VALUE

                                      NONE
                       (Name of exchange on which listed)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.

                                YES [X]  NO [ ]

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-K  is  not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [X]

The  aggregate  market  value  of the voting stock held by non-affiliates of the
registrant  as  of  March  15, 2003, was $4,965,000. The number of shares of the
registrant's  common  stock outstanding as of March 15, 2003, was 5,697,962 (not
including  3,216,978  shares  held  in  treasury).


<PAGE>
                       SAFEGUARD HEALTH ENTERPRISES, INC.
             INDEX TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002


                                                                           PAGE
                                                                           ----
PART  I.

     Item  1.     Business . . . . . . . . . . . . . . . . . . . . . . . .    1

     Item  2.     Properties . . . . . . . . . . . . . . . . . . . . . . .   17

     Item  3.     Legal  Proceedings . . . . . . . . . . . . . . . . . . .   18

     Item  4.     Submission of Matters to a Vote of Security Holders. . .   18

PART  II.

     Item  5.     Market for Registrant's Common Equity and Related
                    Stockholder Matters. . . . . . . . . . . . . . . . . .   18

     Item  6.     Selected  Financial  Data. . . . . . . . . . . . . . . .   20

     Item  7.     Management's Discussion and Analysis of Financial
                    Condition and Results of Operations. . . . . . . . . .   21

     Item 7A.     Quantitative and Qualitative Disclosures About
                    Market Risk. . . . . . . . . . . . . . . . . . . . . .   29

     Item  8.     Financial Statements and Supplementary Data. . . . . . .   29

     Item  9.     Changes in and Disagreements with Independent
                    Accountants on Accounting and Financial Disclosures. .   29

PART  III.

     Item 10.     Directors and Executive Officers of the Registrant . . .   30

     Item 11.     Executive  Compensation. . . . . . . . . . . . . . . . .   32

     Item 12.     Security Ownership of Certain Beneficial Owners and
                    Management and Related Stockholder Matters . . . . . .   34

     Item 13.     Certain Relationships and Related Transactions . . . . .   36

     Item 14.     Controls and Procedures. . . . . . . . . . . . . . . . .   36

PART  IV.

     Item 15.     Exhibits, Financial Statement Schedules, and Reports
                    on Form 8-K. . . . . . . . . . . . . . . . . . . . . .   37

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   38

CERTIFICATIONS BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER. . .   39


                                      (i)
<PAGE>
                                     PART I

ITEM 1. BUSINESS
----------------

In  addition  to  historical  information,  the  description  of  business below
includes  certain  forward-looking  statements  regarding  SafeGuard  Health
Enterprises,  Inc.  and  its  subsidiaries (the "Company"), including statements
about  growth  plans,  business  strategies,  future  operating  results, future
financial  position,  and  general  economic  and  market events and trends. The
Company's  actual  future  operating  results  could  differ materially from the
results  indicated  in  the  forward-looking  statements  as a result of various
events that cannot be predicted by the Company. Those possible events include an
increase  in  competition,  changes  in  health care regulations, an increase in
dental  care  utilization  rates,  new  technologies, an increase in the cost of
dental  care, the inability to contract with an adequate number of participating
providers,  the  inability  to  efficiently integrate the operations of acquired
businesses,  the  inability  to  realize the carrying value of certain long-term
promissory notes owed to the Company, natural disasters, loss of key management,
and  other  risks and uncertainties as described below under "RISK FACTORS." The
following  should  be  read  in  conjunction  with  the  Consolidated  Financial
Statements  of  the  Company  and  Notes  thereto.

(a)  GENERAL DEVELOPMENT OF BUSINESS

The  Company  provides  a  wide  range of dental benefit plans, including health
maintenance  organization  ("HMO")  plan  designs  and  preferred  provider
organization  ("PPO")/indemnity  plan  designs. The Company also provides vision
benefit  plans,  administrative services, and preferred provider network rental.
The  Company conducts its business through several subsidiaries, one of which is
an  insurance  company  that  is  licensed in a number of states, and several of
which  are  dental  HMO  plans  that  are each licensed in the state in which it
operates.  The  Company's  operations  are  primarily in California, Florida and
Texas,  but  it  also  operates  in  a  number  of  other  states.

The  Company's  predecessor,  SafeGuard  Health  Plans,  Inc.,  a  California
corporation, (the "California Plan") commenced operations in 1974 as a nonprofit
corporation. The California Plan converted to for-profit status in December 1982
and is currently a subsidiary of the Company. SafeGuard Health Enterprises, Inc.
(the  "Parent") was incorporated in California in November 1982 and acquired the
California  Plan  in  December 1982. In August 1987 the Parent reincorporated in
Delaware. Unless the context requires otherwise, all references to the "Company"
or  "SafeGuard"  mean  SafeGuard  Health Enterprises, Inc. and its subsidiaries.

The  Company  completed  four  acquisitions  during the last seven (7) years. In
August  1996,  the Company acquired a dental HMO company located in Texas, which
had  approximately $12 million of annual revenue at the time of the acquisition.
In May 1997, the Company acquired a dental HMO company located in Florida, which
had  approximately  $7 million of annual revenue at the time of the acquisition.
In  August  1997, the Company acquired an indemnity insurance company, which had
no  active  business but was licensed in a number of states in which the Company
was  not  previously  licensed.  In  August  2002, the Company acquired a second
dental  HMO  company located in Florida, which also had approximately $7 million
of  annual  revenue  at  the  time of the acquisition. The purchase price of the
acquisition  in  August  2002 was approximately $6.7 million, which consisted of
$3.0  million  in  cash,  a secured convertible note for $2,625,000, and 769,231
shares  of  the  Company's  common stock. The Company is currently licensed as a
dental  HMO in eight states, and as an indemnity insurance company in 20 states.
However,  substantially  all  of its revenue is generated in California, Florida
and  Texas.

The  Company's  executive offices are located at 95 Enterprise, Suite 100, Aliso
Viejo,  California 92656-2605, and its website address is www.safeguard.net. Its
telephone  number  is  949.425.4300  and  its  fax  number  is  949.425.4586.

DENTAL CARE MARKETPLACE

The total market for dental care services and for dental benefit plans has grown
rapidly  in  recent  years.  The  United  States Centers for Medicare & Medicaid
Services  (formerly  known  as the Health Care Financing Administration) ("CMS")
reported  that total expenditures for dental care in the United States increased
from  approximately $46.8 billion in 1996 to an estimated $65.6 billion in 2001.
The  National Association of Dental Plans (the "NADP") estimated that the number
of people in the United States that were enrolled in some type of dental benefit
plan  increased  from  133  million  in  1996  to  170  million  in  2001.


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<PAGE>
The  cost of dental services has increased in recent years at a rate higher than
that for consumer goods as a whole. The United States Bureau of Labor Statistics
(the  "BLS")  reported that the consumer price index ("CPI") for dental services
for  all urban consumers increased by 24.2% from 1996 to 2001, while the CPI for
all items for all urban consumers increased by 12.9% during the same period. CMS
reported  that expenditures for dental services accounted for approximately 4.6%
of total national health care expenditures during 2001. As a result of increases
in  the  cost  of dental services, the Company believes that employers and other
purchasers  of  dental  care benefits have a significant interest in effectively
managing  the  cost  of  dental  care  benefits.

As  noted  above,  the  NADP estimated that approximately 170 million people, or
approximately 60% of the total population of the United States, were enrolled in
some  type  of  dental  benefit  plan  in  2001. The United States Census Bureau
estimated  that  approximately  241  million people, or approximately 85% of the
total  population  of  the  United States, were enrolled in some type of medical
benefit  plan  in 2001. The Company believes the number of people without dental
coverage  represents  an  opportunity  for dental benefits companies to increase
their  enrollments.

The  NADP  estimated  that  enrollment  in  dental  HMO  plans  decreased  from
approximately  25  million  people in 1996 to approximately 24 million people in
2001.  The  Company  believes the primary reason that total enrollment in dental
HMOs  has  not  increased in recent years is that most purchasers desire greater
flexibility  in  the  choice  of  providers than is generally afforded by dental
HMOs,  and  the  size of dental HMO provider networks has not kept pace with the
growth  in  the  dental  benefits  market.

In  recent  years,  there  has  been a significant increase in the enrollment in
dental  insurance  plans  that  include  PPO  networks,  which typically provide
greater flexibility in the member's choice of providers than a dental HMO. Under
these  plans, the insurance company creates a PPO network by negotiating reduced
fees  with  dentists  in  exchange  for  including  the dentists in a "preferred
provider"  list  that  is distributed to subscribers who are enrolled in the PPO
dental plan. The subscribers who are enrolled in the plan receive a higher level
of  benefits,  in  the  form  of  reduced  out-of-pocket  expense at the time of
service,  if  they choose to receive services from a dentist in the PPO network.
The  NADP  estimated that enrollment in fully insured PPO dental plans has grown
from  approximately 22 million people in 1996 to approximately 62 million people
in 2001. The Company believes that PPO dental plans have been rapidly gaining in
popularity  because  they provide customers with a balance of cost-effectiveness
and  flexibility  in  the  choice  of  providers.

The  dental  benefit  plan business is characterized by participation of several
large  national  insurance companies, and numerous regional insurance companies,
regional  medical  HMOs, and other independent organizations. The NADP estimated
there  were  approximately  90  entities  offering  dental  HMO  plans,  and
approximately  65  entities  offering  dental PPO plans, in the United States in
2000.

The average monthly cost of dental insurance coverage is much lower than medical
insurance  coverage. Dental care is provided almost exclusively on an outpatient
basis,  and  general  dentists,  as  opposed to specialists, perform most dental
procedures.  Most  dental problems are not life threatening and do not represent
serious  impairments  to  overall health. Therefore, there is a higher degree of
discretion exercised by patients in determining when or whether to obtain dental
services,  and  a  higher  degree of sensitivity to the cost of dental services.
Many dental conditions have a range of appropriate courses of treatment, each of
which  has  a  different  out-of-pocket  cost  for patients who are covered by a
dental  insurance plan. For example, a deteriorated filling may be replaced with
another  filling (a low-cost alternative), a pin-retained crown build-up (a more
costly  alternative), or a crown with associated periodontal treatment (the most
costly alternative). The design of a patient's dental insurance plan can have an
impact  on the type of dental services selected by the patient or recommended by
the  dentist.  Dental  benefit  plans  generally  do  not  include  coverage for
hospitalization,  which  is  typically  the  most expensive component of medical
services.  In  addition,  co-payments and co-insurance payments made by patients
under  dental  plans  typically  represent  a  larger share of the total cost of
dental  care,  compared  to  the share of the total cost of medical care that is
paid  by  patients  under  medical  coverage  plans.

Common  features of dental PPO and indemnity plans include annual deductibles of
varying  amounts,  maximum  annual  benefits  of  $2,000  or less per person and
significant  cost  sharing by the patient. Patient cost sharing typically varies
by  the  type  of  dental  procedure, ranging from little or no cost sharing for
preventive  procedures  to  50% or more cost-sharing for bridgework or dentures,
and  even greater cost-sharing for orthodontic care. The relatively high patient
cost-sharing  and  the  relatively  predictable  nature  of  the need for dental
services substantially reduces the underwriting risk of dental PPO and indemnity


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<PAGE>
plans,  compared  to  the  underwriting  risk of a medical insurance plan, which
typically  covers  catastrophic  illnesses  and  injuries.

Under  a dental PPO or indemnity plan, dentists have little incentive to deliver
cost-effective  treatments  because  they  are  compensated on a unit-of-service
basis.  In  contrast, under a dental HMO plan, each general dentist is typically
reimbursed  primarily in the form of a fixed monthly payment for each member who
selects  that dentist as his or her primary dental care provider (a "capitation"
payment). In some cases, the general dentist also receives supplemental payments
from  the  dental  HMO  for  performing  certain  procedures, in addition to the
capitation  payments.  Under  a  dental  HMO  plan,  each dentist also typically
receives  co-payments  from the patient for certain dental services, in addition
to the capitation and supplemental payments from the dental HMO. The co-payments
and  supplemental payments mitigate the level of utilization risk assumed by the
dentist,  but  are  typically  small  enough  to  discourage  the  dentist  from
delivering treatments that are not cost-effective. Capitation payments create an
incentive  for  dentists to emphasize preventive care, to deliver cost-effective
treatments,  and  to  develop  a  long-term  relationship  with  their patients.
Capitation payments also substantially reduce the dental HMO plan's underwriting
risk  associated  with  varying  utilization  of  dental  services.

(b)  FINANCIAL INFORMATION ABOUT SEGMENTS

Management  views  certain  geographic areas as separate operating segments, and
therefore, measures the Company's operating results separately for each of those
geographic  areas.  The  Company  provides  essentially  the  same  products and
services  in  all  of  the  geographic areas in which it operates. For financial
reporting purposes, all the Company's operating segments are aggregated into one
reporting  segment,  which  provides  dental  benefit  plans  and  other related
products  to  employers,  individuals  and  other  purchasers.

(c)  NARRATIVE DESCRIPTION OF BUSINESS

GENERAL DESCRIPTION OF THE COMPANY

The  Company  provides  dental  benefit  plans,  vision  benefit plans and other
related  products,  to  government  and  private sector employers, labor unions,
associations, and individuals. The Company also provides dental benefit plans to
medical  HMOs,  which  include  the  Company's  dental coverage in their product
offerings.  The  Company  currently  has  contracts  with  over 3,000 employers,
medical  HMOs,  labor  unions  and  associations,  and delivers dental or vision
benefits,  or  related services, to a total of over 800,000 covered individuals.
Dental care is provided to covered individuals through the Company's HMO network
of  approximately  6,600  dentists, and through its PPO network of approximately
12,100  dentists.

Under  the  Company's  dental  benefit  plans  that have an HMO plan design, its
customers  pay a monthly premium for each subscriber enrolled in the plan, which
is  fixed  for  a  period of one to two years. The amount of the monthly premium
varies  depending  on  the  dental  services  covered,  the amount of the member
co-payments  that  are  required  for  certain  types  of  dental  services, the
geographic  location of the group, and the number of dependents enrolled by each
subscriber.  Each  subscriber  and  dependent  is  required  to select a general
dentist  from  the  Company's  HMO  provider network, and to receive all general
dental  services from that dentist. A referral to a specialist must be requested
by  the  general dentist and approved in advance by the Company. The approval by
the  Company confirms that the referral is for a service covered by the member's
benefit  plan.  Under  HMO  plan  designs,  subscribers  and  dependents are not
required  to  pay  deductibles  or  file  claim  forms, and are not subject to a
maximum  annual  benefit.

Under  the Company's dental benefit plans that have a PPO/indemnity plan design,
its  customers  also  pay  a monthly premium for each subscriber enrolled in the
plan,  which  is  generally  fixed  for  a period of one year. The amount of the
monthly  premium  varies depending on the dental services covered, the amount of
the  annual  deductible, the portion of the cost of dental services that is paid
by  the  subscriber  or  dependent,  the  maximum  annual  benefit  amount,  the
geographic  location of the group, and the number of dependents enrolled by each
subscriber.  Under  PPO/indemnity  plan designs, subscribers are required to pay
deductibles  and  co-insurance  amounts  that  are  typically  higher  than  the
co-payments  required  under  a  dental  HMO  plan, and the benefits covered are
typically subject to an annual maximum amount. However, under PPO/indemnity plan
designs,  subscribers  and dependents can choose to receive dental services from
any  dentist  of their choice. If the subscriber or dependent chooses to receive
services  from  a  dentist  in the PPO network, the services will typically cost
less  than  if  the services were delivered by a dentist not contracted with the
Company's  PPO  network.


                                        3
<PAGE>
The  Company's  goal  is to be a leading dental benefits provider in its primary
markets  of  California,  Florida and Texas, but it also provides dental benefit
plans  in  a number of other states. The Company offers a comprehensive range of
dental  benefit  plans  that is based on a set of standard plan designs that are
available  in  each  of the markets in which the Company operates. Additionally,
for large clients, the Company has the information technology and flexibility to
deliver  highly  customized  benefit  plans.

Under  the  Company's  vision benefit plans, customers pay a monthly premium for
each  subscriber enrolled in the plan, which is fixed for a period of one to two
years.  The monthly premium varies depending on the vision services covered, the
member  co-payments  required  for  certain  vision  services, and the number of
dependents  enrolled  by  each  subscriber.  Under  the  Company's vision plans,
subscribers  and  dependents  can  choose  to  receive  vision services from any
licensed  provider  of  their  choice. If the subscriber or dependent chooses to
receive  services  from  a  provider  in the PPO network, the amount paid by the
subscriber  or  dependent at the time of service is typically less than it would
be  if  the  services  were  delivered by a provider outside of the PPO network.

The  Company  uses  multiple  distribution  channels  to  sell its products. The
Company  targets  the  large  employer  market  by developing relationships with
benefits  consulting  firms  that are often engaged by large employers to assist
them  in  selecting  the  best  dental  plans.  The  Company utilizes its senior
management,  outside  consultants,  and  its  internal  sales  force  to develop
relationships  with benefits consulting firms and potential large customers. The
Company  primarily  uses its internal sales force to sell the Company's products
to  mid-size  employer  groups,  by  developing  relationships  with independent
brokers, and to a lesser extent, by contacting potential customers directly. The
Company  has  a telephonic small group sales and service function in each of its
primary  geographic  markets, which focuses on developing the small group market
and  providing quality service to existing customers in a cost-effective manner.
In  addition,  the  Company  has  recently  developed  new  products  and  new
distribution  channels  for the individual dental benefit plan market, which the
Company  believes  has  growth  potential.  The  Company's dental plans are also
offered  to  medical  HMOs,  which  include  the  Company's  dental  plans  in
comprehensive  medical  plans  offered by those medical HMOs. In some cases, the
Company  utilizes  general  agency  relationships,  which generally target small
employers  and  individuals.

The Company is committed to providing quality dental care to its members through
a network of qualified, accessible dentists. By providing a wide range of dental
benefit  plan designs, including HMO and PPO/indemnity plan designs, the Company
is able to maintain a competitive network of providers by delivering patients to
dentists  under  both  types of provider reimbursement. In addition, the Company
offers  stand-alone  administrative  services  and  PPO  access  products to its
customers,  which deliver additional patient volume to its contracted providers.
The  Company  has provider relations representatives who maintain the network of
providers  in  each  of  the Company's significant geographic markets. The local
knowledge  and expertise of these representatives enables the Company to develop
and  maintain  competitive  provider  networks,  which is an important factor to
employers  in  selecting  a  dental  benefit  plan.

ACQUISITIONS

In  August  2002, the Company acquired all of the outstanding stock of Paramount
Dental  Plan,  Inc.  ("Paramount"),  which  was  a  dental  HMO  company  with
approximately  $7 million of annual revenue located in Tampa, Florida. Paramount
was  merged  with  the  Company's  preexisting  dental HMO subsidiary in Florida
effective  upon  the  closing  of  the  acquisition. The business purpose of the
acquisition  was  to increase the Company's market penetration in Florida, which
is  one  of  the Company's primary geographic markets. The acquisition increased
the  number of members in Florida for which the Company provides dental benefits
from  approximately  50,000  members  to  approximately  275,000 members. During
September  2002,  the  Company  integrated  the  employees of Paramount into its
Florida  operations,  and  the  former  chief  executive officer of Paramount is
currently  President  of  the  Company's  Florida  operations.  The  Company  is
currently  in  the  process of integrating a majority of the information systems
activities of Paramount into its primary information systems application, and is
also  in  the  process of integrating other aspects of Paramount's business into
the  Company's  operations.

In  January 2003, the Company entered into a definitive agreement to acquire all
of  the  outstanding  stock  of Ameritas Managed Dental Plan, Inc. ("Ameritas"),
subject  to  regulatory  approval.  Ameritas  is  a  dental  HMO  company  with
approximately  $4  million  of  annual  revenue,  and  is located in Costa Mesa,
California. The business purpose of the acquisition is to increase the Company's
market  penetration  in  California,  which  is  one  of  the  Company's primary


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<PAGE>
geographic  markets.  The  acquisition  is  expected  to  increase the number of
members  in  California  for  which  the  Company  provides dental benefits from
approximately  300,000  members  to  approximately  330,000 members. The Company
expects  to complete this transaction during the first half of 2003, although it
is  still  subject  to regulatory approval. The Company expects to integrate the
operations of Ameritas into the Company's existing California operations and its
National  Service  Center  in  Aliso  Viejo,  California  upon  completing  the
transaction.  In connection with the completion of this transaction, the Company
expects  to  enter into a 5-year marketing services agreement with Ameritas Life
Insurance Corp., the seller of Ameritas, ("ALIC"). Under this marketing services
agreement,  ALIC  will  market the Company's dental HMO benefit plans to clients
that purchase dental PPO and indemnity benefit plans and other employee benefits
products  from  ALIC.

GEOGRAPHIC MARKETS

The  Company  operates  primarily  in  California,  Florida  and  Texas  and its
marketing  activities  are  currently focused on these states. It also maintains
dental  HMO or dental PPO provider networks in several other states, and obtains
new  business  in  those  other  states  from time to time. The Company uses its
provider  networks  in  other states primarily to serve customers in California,
Florida or Texas that have a portion of their employees located in other states.

The  Company  started  its  business  in  California,  and expanded to Texas and
Florida primarily through the acquisition of two dental HMO companies located in
those two states. It is possible that the Company could expand its operations to
additional states as a result of future acquisitions or new or expanded customer
contracts,  although  the  Company  has  no  current  plans  to  do  so.

PRODUCTS

The  Company operates primarily in a single business segment, which is providing
dental  benefit  plans to employers, labor unions, medical HMOs, individuals and
other  purchasers.  The  Company  provides  a broad range of dental benefit plan
designs,  depending  on  the demands of its customers. In addition to offering a
range  of  benefit  plan designs, the Company offers dental benefit plans with a
restricted  choice  of  providers,  through  its HMO plans, plans with financial
incentives  to  use  network providers, through its PPO plans, and benefit plans
with  an  unrestricted choice of providers, through its indemnity plans. Premium
rates for each benefit plan are adjusted to reflect the benefit design, the cost
of  dental services in each geographic area, and whether the covered individuals
can  select  any  provider at the time of service. In addition to dental benefit
plans,  the  Company also offers other related products, as described below. The
revenue  currently  generated by these other related products is not significant
compared  to  the  revenue  generated  by  the  Company's  dental benefit plans.

Dental  HMO Plan Designs. The Company offers a comprehensive range of dental HMO
plan  designs,  which  typically  cover  basic  dental  procedures,  such  as
examinations,  x-rays,  cleanings  and fillings, for no additional charge at the
time of service, although some benefit designs require the member to pay a small
co-payment  for  each  office  visit. Dental HMO plans also typically cover more
extensive  procedures  provided  by the general dentist, such as root canals and
crowns,  as  well  as  procedures  performed  by specialists contracted with the
Company,  including  oral  surgery, endodontics, periodontics, orthodontics, and
pedodontics,  in  exchange  for  member  co-payments that vary depending on each
member's  benefit  plan  design.  In  order  for  a  member  to  be treated by a
specialist,  the  member's  general  dentist  must  initiate  a  referral  to  a
specialist,  and the Company reviews each referral request prior to the member's
visit  to  the  specialist.  The  Company's  dental  HMO plan designs also cover
emergency  out-of-area treatments that are required when a member is temporarily
outside  the  geographic  area  served  by  his  general  dentist.

Under  a dental HMO plan, each subscriber or dependent selects a general dentist
from  the  Company's  HMO  provider  network,  and  receives  all general dental
services from that dentist. The general dentist selected by each member receives
a  monthly  capitation  payment  from  the Company, which is designed to cover a
majority  of  the  total  cost  of the general dental services delivered to that
member.  The  monthly  capitation  payment  does not vary with the nature or the
extent  of dental services provided to the member by the general dentist, but is
variable  based  on  the  particular  benefit  plan purchased by each member. In
addition  to  the  capitation  payments,  the  general  dentist  also  receives
co-payments  from  the  members  for  certain types of services, and may receive
supplemental  payments  from  the  Company  for  certain  types of services. The
Company  typically  pays  for  services  delivered  by  a  specialist based on a
negotiated  fee  schedule.


                                        5
<PAGE>
In  addition  to  the  dental HMO plan designs described above, the Company also
provides  a dental HMO plan design in Florida that covers only semi-annual exams
and  cleanings,  but  also provides a schedule of negotiated discounts which the
member  can  use  when  obtaining other dental services. Under this type of plan
design,  the  subscribers and dependents must receive services from a dentist in
the  Company's  HMO  network  in  order  to  receive  the  benefits of the plan.

Dental  PPO/Indemnity  Plan Designs. The Company offers a comprehensive range of
dental  PPO/indemnity  plan  designs, subject to regulatory restrictions. Dental
PPO/indemnity  plan designs typically cover the same dental procedures as dental
HMO  plan  designs.  Under  the Company's dental PPO/indemnity plan designs, the
covered  individuals  are required to make a co-insurance payment at the time of
each  service,  which  is typically higher than the co-payments required under a
dental  HMO  plan  design. In addition, the benefits covered under the Company's
dental  PPO/indemnity  plan designs are subject to annual deductibles and annual
benefit  maximums,  which  is  not  the case under the Company's dental HMO plan
designs.

Under  dental  PPO/indemnity plan designs, subscribers and dependents can choose
to  receive covered services from any licensed dentist. In the case of a benefit
plan that includes a PPO component, the co-insurance amounts paid by the covered
individual  are  reduced if he or she chooses to receive services from a dentist
in  the  Company's  preferred  provider  network.  In  addition,  the  covered
individual's  annual  deductible  is  typically  waived  if he or she chooses to
receive  all  dental services from a dentist in the Company's preferred provider
network.  The  Company  pays for services delivered by dentists in its preferred
provider  network  based  on  negotiated fee schedules, which, together with any
co-insurance  payment  due from the patient, constitutes payment in full for the
services  delivered  (i.e.,  there is no "balance billing" by the provider). The
Company  pays  for services delivered by non-contracted providers based on usual
and customary dental fees in each geographic area, and the provider may bill the
patient  for  any difference between his or her standard fee and the amount paid
by the Company. The Company believes that offering an indemnity dental plan with
a  PPO network is an attractive way to enter geographic areas where few dentists
have  agreed to participate in HMO networks. In such areas, participation in the
PPO  network  can  serve  as  a  transitional  step  for  dentists,  between the
traditional  system  of  reimbursement  based  on  usual  and customary fees, to
participation  in  an HMO network. Dental PPO/indemnity plan designs subject the
Company  to  more  significant  underwriting risks than dental HMO plan designs,
because  the  Company assumes all the risk related to varying utilization rates.

The Company believes that PPO/indemnity plan designs are attractive to employers
and  other  purchasers  because  they  are  a  cost-effective  alternative  to
traditional  indemnity  insurance,  and  they  offer  more  freedom of choice of
providers  than  dental  HMO  plan  designs.

Defined  Benefit  Dental  Plans.  The  Company offers a range of defined benefit
dental  insurance  plans.  Under  these  plans,  subscribers  and dependents are
reimbursed  a  fixed  amount  for  each procedure performed, regardless of which
provider  performs the procedure. One innovative feature of this product is that
certain  plan  designs include coverage for dental implants, which are typically
excluded  from  other  types  of dental benefit plans. This product is also sold
with  or  without  orthodontic  coverage. Defined benefit plans are designed for
customers  who  want  to  avoid  the restrictions of a network-based plan, while
paying  a  monthly  premium  that  is  significantly less than that of a typical
PPO/indemnity plan. Because this product is not dependent on a provider network,
it  can  be  marketed  to  potential  customers  who  are located outside of the
geographic  areas  covered  by  the  Company's  HMO  and  PPO provider networks.

Dual  Option Product. The Company frequently combines one of its dental HMO plan
designs  with  one  of  its PPO/indemnity plan designs to create a "dual option"
product  for  its  customers. As a result, each subscriber can choose whether to
enroll  in  the  dental  HMO  plan  design  or the PPO/indemnity plan design. By
offering  a  dual  option  product,  the  Company can offer its subscribers more
flexibility,  and  can  capture  a  larger  portion of the total dental benefits
expenditures  by each of its customers. This product allows the Company to offer
a  dental  HMO  plan  design to cost-conscious customers, while also providing a
PPO/indemnity  plan  design  for  coverage  of  employees  located  outside  the
geographic  area served by the Company's HMO provider network, and for employees
who  are willing to pay higher premiums for greater flexibility. Certain states,
including  Nevada  and Oklahoma, require that dental HMO plan designs be offered
only  as part of a dual option product and other states may do so in the future.

Vision  Benefit  Plans.  The  Company  offers a range of vision benefit plans to
employer  groups  and other purchasers, which cover routine eye care in exchange
for  a  fixed  monthly  premium.  In addition to routine optometric care, vision


                                        6
<PAGE>
plans offered by the Company generally cover a portion of the cost of glasses or
contact lenses. The vision plans generally cover only frames, lenses and contact
lenses  if  the covered individual has separate medical coverage for the cost of
routine  eye  exams.  Under  the  vision plan, subscribers can choose to receive
services  from  any  licensed  optometrist  or  ophthalmologist of their choice.
Alternatively,  they  can  choose  to  receive  services  from an optometrist or
ophthalmologist  in  the  preferred  provider  network,  in  which  case  their
co-insurance  payments  at  the time of service would be reduced. Currently, the
Company's  annual  revenue  from  vision  benefit  plans  is  not  material.

Other  Dental  Benefits Products. For self-insured customers, the Company offers
claims administration under an administrative services only ("ASO") arrangement,
under  which  the  Company  does  not  assume  any of the underwriting risk. The
Company  receives  an  administrative fee to process claims and the underwriting
risk  is  retained by the customer sponsoring the self-insured plan. The Company
also  provides  access  to  its PPO network for a fixed monthly fee based on the
number  of subscribers covered by the product. Under this product, the providers
in  the  PPO  network  offer  a  reduced  fee  schedule for services provided to
participating  patients.  The  Company makes no payments to the providers in the
PPO  network  under  this product. In addition, in one of its primary geographic
markets,  the  Company  sells  dental  PPO/indemnity  benefit  plans  that  are
underwritten  by  an  unrelated  insurance  company,  and  provides  certain
administrative  services  related  to  these  plans.  In  exchange for its sales
efforts  and  administrative  services, the Company receives a fixed monthly fee
for each subscriber enrolled. Currently, the Company's annual revenue from these
other  products  is  not  material.

MARKETING

The  Company  markets its products to employer groups, labor unions, individuals
and  other  purchasers  primarily  through  independent brokers and consultants.
Independent  brokers  are  typically  engaged  by  employer  groups  and  other
purchasers  to  select  the  dental  plan  that  best  suits  the  needs  of the
purchaser's employees, in terms of price, benefit design, geographic coverage of
the  provider network, financial stability, reputation for customer service, and
other  factors.  Brokers are typically paid by the Company, based on a specified
percentage  of  the premium revenue collected from each group contract generated
by the broker. Large employers typically engage consultants, instead of brokers,
to  assist  them  in  selecting the dental plan that best suits their needs. The
consultants  generally  perform  the same function as brokers, but are typically
paid  by  the  employer  instead  of  the Company. Consequently, large employers
expect  to pay premium rates that have been reduced to reflect the fact that the
Company is not paying a broker commission. Brokers and consultants do not market
the  Company's  benefit  plans  on  an  exclusive  basis.

The  Company  has  an internal sales force that is paid through a combination of
salary  and  incentive  compensation  based  on  the  revenue  generated by each
salesperson.  The function of the internal sales force is primarily to cultivate
relationships  with brokers and consultants, and to help brokers and consultants
present  the Company's benefit plans to their clients in the most favorable way.
A  small  portion  of  the Company's sales is generated directly by its internal
sales  force.  The  Company  generally  uses  the  same brokers, consultants and
internal  sales  force  to  market  all  of  its  products.

After an employer group or other purchaser decides to make the Company's benefit
plan  available  to  its employees, the Company's marketing efforts shift to the
Company's employees (potential subscribers). Typically, employees participate in
an  annual open enrollment process, under which they select the employee benefit
plans  they  wish  to  use  for  the  upcoming  year. During the open enrollment
process, employees typically choose between benefit plans offered by the Company
and  benefit  plans  offered  by  competitors of the Company, and in some cases,
whether to purchase any benefit plans at all. In the case of some employers, the
Company's  benefit  plans  are  offered  to  employees  on  an  exclusive basis.
Generally,  employees  can enroll in the Company's benefit plans or cancel their
participation  in  the  Company's  benefit  plans  only  during this annual open
enrollment  process.

In  addition  to  an  internal  sales  force,  the  Company also employs account
managers  who  are  responsible  for  promoting  retention  of  the  clients and
subscribers  enrolled  in  the Company's benefit plans, and marketing additional
products  to  existing  customers.  These  account  managers are responsible for
supporting  the  customer's  open enrollment process to ensure that difficulties
experienced  by  the  customer  during  this process are minimized, and that the
number  of  subscribers  who enroll in the Company's benefit plans is maximized.
The  account  managers  perform  this  function for both new employer groups and
renewing  employer  groups.  Account  managers  are paid a salary plus incentive
compensation  for  selling  additional  products  to  existing  customers.


                                        7
<PAGE>
The  Company  markets its benefit plans to medical HMOs primarily through direct
contact  between  executives  of  the Company and the medical HMO. The Company's
existing  contracts  with medical HMOs typically cover a relatively large number
of  subscribers,  and  accordingly,  executives of the Company directly maintain
these  relationships  and  provide customer service support on an ongoing basis.

RATING AND UNDERWRITING

The  Company develops the premium rates for each of its benefit plans, including
rate  adjustments  that depend on various group-specific underwriting variables,
based  on past experience with similar products, and based on actuarial analysis
using  industry  claims  cost  information.

When  the Company has the opportunity to submit a proposal for a benefit plan to
a  potential  customer,  it first obtains certain basic underwriting information
from  the  prospective  client.  This information includes whether the potential
customer  currently  has  dental  coverage,  the  benefit design of the existing
dental  coverage, the geographic location of the potential customer's employees,
the number of employees and dependents who are currently enrolled and the number
who  are  eligible for coverage, the portion of the cost of dental coverage that
is  paid  by  the employer, whether the potential customer is considering making
the  Company  the  exclusive  provider  of  dental  coverage,  and other similar
information.  The  Company  then  evaluates  this  information  to  assess  the
underwriting  risk  associated  with  providing  a  dental  benefit  plan to the
potential  customer.  Based  on  this  evaluation,  the  Company  either makes a
proposal that includes a benefit design and premium rates that take into account
the  Company's  risk  assessment,  or  declines  to  make  a  proposal due to an
excessive  amount of underwriting risk, or the lack of compatibility between the
Company's provider network and the location of the potential client's employees.

CLIENTS AND CUSTOMER CONTRACTS

The  Company  currently provides dental or vision coverage, or related services,
to  an  aggregate  of  approximately 800,000 individuals, who participate in the
Company's  benefit  plans  primarily  through  group  contracts  with over 3,000
employers,  medical  HMOs, labor unions and other purchasers of dental or vision
benefits. The Company's customers include many large employers, including Boeing
Corporation,  City  of Dallas, County of Los Angeles, Joint Council of Teamsters
No.  42  Welfare  Trust,  North  Broward  Hospital District, Southern California
Edison,  Southern California Gas Company, and State of California, among others.
A  small  portion of the total covered individuals participates in the Company's
benefit plans through individual dental HMO plans purchased from the Company. No
single  customer  accounts  for five percent (5%) or more of the Company's total
premium  revenue.

The  Company's group contracts generally provide for a specified benefit program
to be delivered to plan participants for a period of one to two years at a fixed
monthly  premium  rate for each subscriber type. The contracts typically provide
for  termination  by  the  customer  upon 60 days written notice to the Company.

PROVIDER NETWORKS

The  Company  currently has approximately 6,600 dentists in its HMO network, and
has  approximately 12,100 dentists in its PPO network. The Company believes that
a  key  element  in  the  success  of  a dental benefits company is an extensive
network  of participating dentists in convenient locations. The Company believes
that dentists who participate in its HMO and PPO networks are willing to provide
their  services  at reduced fees in exchange for a steady stream of revenue from
patients  enrolled  in  the  Company's  benefit plans. In addition, this revenue
source  for  the  dentist  is  relatively  free  from  collection  problems  and
administrative  costs  sometimes  associated  with  other  types  of  patients.
Therefore, qualified dentists and/or dental groups have generally been available
and  willing  to  participate  in the Company's HMO and PPO networks in order to
supplement  the  patients  for  which  they  are  paid usual and customary fees.

The  Company  requires that all dentists in its HMO network meet certain quality
assessment  program  standards.  Those  standards  include  current professional
license  verification,  adequate liability insurance coverage, a risk management
review  of  the  dental  office  facility to ensure that Occupational Safety and
Health  Act  ("OSHA") requirements and other regulatory requirements are met, an
inspection  of  the office's sterilization practices, and a review of the dental
office  location,  including  parking  availability  and  handicap  access.


                                        8
<PAGE>
The  Company  compensates  the  general  dentists  in  its HMO network primarily
through  monthly  capitation  payments  and  supplemental payments. Each general
dentist  typically  receives  a  fixed  monthly  capitation  payment  for  each
subscriber or dependent that selects that dentist as his or her primary dentist.
The  amount of the capitation payment related to each member varies based on the
plan  design  in which the member is enrolled, but does not vary with the nature
or  extent  of  the  dental  services  provided  to  the  member. In addition to
capitation payments, the general dentists may receive supplemental payments from
the  Company  and  co-payments  from  the patients, depending on the plan design
purchased  by  each  patient.  The  Company typically makes a fixed supplemental
payment  to  the  general  dentist  each  time  the  dentist  delivers specified
procedures  to  members  enrolled  in  certain  benefit plans. The amount of the
supplemental  payment  varies  depending on the specific procedure performed and
the  amount  of  the co-payment collected from the member, which varies with the
benefit  plan design. Supplemental payments are designed to mitigate the risk to
the  dentist associated with procedures that require the payment of a laboratory
fee  by  the  dentist,  and  members  who  require an extensive amount of dental
services.  Supplemental  payments are low enough to avoid providing an incentive
for  the  dentist  to  deliver services that are not cost-effective. The Company
believes  the use of supplemental payments provides for a higher level of member
and  provider  satisfaction  with  the  Company's  dental  HMO plan designs. The
general  dentist  also  typically  receives co-payments from members for certain
types  of  services, which vary based on the plan design under which each member
is  covered.  Although  most  general  dentists in the Company's HMO network are
compensated through capitation and supplemental payments, in some cases, general
dentists are compensated based on a negotiated fee for each procedure performed.
No  individual  dental  office provides services to five percent (5%) or more of
the  members  enrolled  in  the  Company's  dental  HMO  plan  designs.

The  Company's  dental  HMO  network  also  includes specialists in the areas of
endodontics, oral surgery, orthodontics, pedodontics, and periodontics. In order
for  a  member  to  receive  services  from a specialist, those services must be
requested  by  the  member's  general  dentist  and  approved  in advance by the
Company. The approval by the Company confirms that the referral is for a service
covered  by the member's benefit plan. Specialists are reimbursed by the Company
based  on  a  negotiated fee schedule, and also receive co-payments from members
based  on  the  benefit  plan  design  under  which  each  member  is  covered.

Dentists  in the Company's PPO network are compensated based on a negotiated fee
schedule  that  is  generally 20 to 40 percent less than the usual and customary
fees  in  that  provider's  geographic area. Non-contracted dentists who provide
services  to  subscribers  and  dependents enrolled in PPO plans are compensated
based  on  usual  and  customary  fees in each geographic area, and may bill the
subscriber  or  dependent  for  any  remaining  balance. Under some benefit plan
designs  offered by the Company, the Company compensates non-contracted dentists
based on a fixed amount for each procedure, and the dentist may bill the patient
for  any  remaining  balance.

The  Company  employs  provider  relations  representatives who are based in the
geographic  markets served by the Company. These representatives are responsible
for  developing  and  maintaining the Company's network of HMO and PPO dentists.
They  negotiate contracts with dentists and also assist the network providers in
the  administration  of the Company's benefit plans. In the event that a network
dentist  terminates  his  relationship  with the Company, the provider relations
representative  is responsible for recruiting new providers to meet the needs of
the  patients  enrolled  in  the  Company's  benefit  plans.

The  dentists  in  the  Company's HMO and PPO networks are free to contract with
other  dental benefit plans, and both the provider and the Company can typically
terminate  the  contract  at  any  time  upon  60  days prior written notice. In
accordance  with  the contract, the Company may also terminate the contract "for
cause"  upon  15  days  prior  written  notice.  The Company can also change the
reimbursement  rates,  member  co-payments,  and  other  financial  terms  and
conditions  of  the  contract  at  any  time,  with  ten (10) days notice to the
provider.  The  Company's  contracts  with  dentists in its HMO and PPO networks
require the dentists to maintain professional liability insurance with a minimum
coverage  of  $200,000 per claim, and $600,000 in the aggregate per year, and to
indemnify  the  Company for claims arising from the dentist's acts or omissions.

QUALITY MANAGEMENT

The  Company  maintains  a quality management program with respect to its dental
HMO  business under the direction of its Dental Director and Director of Quality
Management.  The  Company's  quality management program includes verification of
provider  credentials,  assessment  of each dentist's compliance with applicable
state  regulatory  standards  and practice standards established by the Company,
monitoring of patient appointment availability and accessibility of dental care,


                                        9
<PAGE>
monitoring  of  patient  satisfaction  through  member  surveys and other tools,
analysis  of  dental  care  utilization  data,  addressing member complaints and
grievances, and assessment of other qualifications of dentists to participate in
the  Company's  HMO  network.

The Company maintains a credentialing committee, which uses information provided
by  an  NCQA-certified Credentialing Verification Organization ("CVO") to verify
each  provider's  licensing  status,  insurance  coverage,  and  compliance with
applicable  federal  and  state  regulations,  and  to  review  the  National
Practitioners  Data  Bank for complaints filed against the provider. The Company
also  uses  an  outside  contracting  service  to  perform on-site dental office
quality  assessment  reviews  to  determine  appropriateness  of care and review
treatment  outcomes.

The  Company  uses  an  independent  outside  service  to conduct regular member
satisfaction  surveys.  These  surveys  monitor the level of member satisfaction
with  respect to the dental services provided by network dentists, the choice of
providers  and  availability  of  appointments within the Company's network, the
benefits  covered  by  the  Company's  benefit  plans,  and the customer service
provided by the Company. The results are used by the Company to determine how it
can  improve  its  provider  network  and  the  level of service provided to its
members.

UTILIZATION REVIEW

The  Company  monitors  the  utilization  rates  for  various  dental procedures
provided  by  general  dentists  in its HMO network, as well as the frequency of
specialist  referrals  initiated  by  those  dentists,  based  on  paid  claim
information  and  encounter data submitted by the dentists. The analysis of this
information,  including  comparisons among providers in the network, enables the
Company to determine whether any of its providers display practice patterns that
are  not  cost-effective, or practice patterns that are otherwise inappropriate.
When  this  information  shows a potentially inappropriate practice pattern, the
Company  conducts  a  more  focused  review  of the dental practice in question.

The  Company  also  monitors the utilization rates for various dental procedures
provided  by  dentists  in its PPO network, based on paid claim information. The
analysis  of  this  information,  including  comparisons  among providers in the
network,  enables  the  Company  to  focus  its  provider contracting efforts to
develop  a  more cost-effective PPO network, as well as to improve the design of
its  PPO/indemnity  benefit  plans.  This information also allows the Company to
demonstrate  savings achieved by the Company and its subscribers and dependents,
as  a  result  of  the  contracting  arrangements  between  the  Company and the
providers  in  its  network.

MEMBER SERVICES

The  Company  provides basic member services from its National Service Center in
Aliso  Viejo,  California  through  the  use of toll-free telephone numbers. The
toll-free  telephone  numbers  provide members and dental offices with access to
automated  services  24  hours  per  day,  and  with  access  to member services
representatives  from  5:00 a.m. to 5:00 p.m. Pacific Time. Automated service is
available  24  hours a day for inquiries such as selection of a network dentist,
requests  for  identification  cards,  and eligibility verification. The Company
uses  an  automated  call  distribution  ("ACD")  system  for  its management of
customer  service  calls.

The  Company maintains a Quality Management ("QM") Committee under the direction
of  its  Dental Director and Director of Quality Management. The QM Committee is
responsible  for  the disposition of all types of member grievances with respect
to  the  Company's  dental HMO plans. Member grievances are typically originated
through a member services call or a letter written to the Company by the member.
The  Company  has  a  standard  grievance  resolution process that begins with a
member  services  representative  who  attempts to resolve the grievance. In the
event  this is not successful, or the grievance is related to dental care issues
that are beyond the expertise of a member services representative, the grievance
is  addressed  by  the Company's Quality Management department. The QM Committee
addresses  grievances  that  cannot  be  resolved  by  the  Quality  Management
department.  The  Company  responds  to  all  member  grievances  with a written
disposition  of  the grievance within 30 days of receipt of the grievance. After
the  QM  Committee  has responded to the grievance, the member has the option of
submitting the grievance to binding arbitration, which is conducted according to
the  rules  and  regulations  of  the  American  Arbitration  Association.

The  QM  Committee  monitors the frequency of member grievances by type, and the
average  time in which the Company responds to grievances, in order to determine
ways  it  can  improve  its  communications  with members and network providers,


                                       10
<PAGE>
improve  its  customer  service, and determine ways to improve the efficiency of
the  grievance  resolution  process.

MANAGEMENT INFORMATION SYSTEMS

The Company currently uses two primary business applications for its eligibility
files,  monthly  billings,  claims  processing, commission payments, utilization
management, and provider network activities, one for its dental HMO plan designs
and  one for its dental PPO/indemnity plan designs. Both of the primary business
applications  include  comprehensive  information  on  the Company's eligibility
files,  benefit  plan  designs,  premium  rates,  claim  processing  activities,
provider payment arrangements, and broker commissions. Both systems are flexible
enough  to  accommodate a wide variety of benefit plan designs to meet the needs
of  the  Company's  customers. The system used for the Company's dental HMO plan
designs  is  a  proprietary  application  that  is  continuously modified by the
Company  to  meet  the  changing  needs  of  this  business. The system used for
PPO/indemnity  plan  designs  is a standard application purchased from a vendor,
which  generally  meets  the Company's needs for its PPO/indemnity plan designs.

During 2002, the Company purchased a new software application, which the Company
intends to use as its primary business application. The new software application
will replace the Company's two existing systems with a single system that can be
used for all of the Company's existing products. The Company is currently in the
process  of  converting  its  business to the new software application, which is
expected  to  reduce  administrative  expenses  and enhance customer service. In
connection  with  this conversion project, the Company is also in the process of
developing  an  enhanced  web  site  that  will  allow customers to update their
eligibility  files  online,  allow  providers  to verify eligibility online, and
provide  other  interactive  features  for  customers,  providers  and  brokers.

During 2001, the Company implemented an enhanced accounts receivable application
that  is  currently  used  for its dental HMO plan designs. This application was
purchased  from  a  software  vendor, and has been integrated with the Company's
proprietary dental HMO system. The Company believes this new accounts receivable
system  provides  greater  assurance  that the Company is collecting appropriate
amounts  from  its  customers,  has  improved  the efficiency of the billing and
collections  process,  and  improves  customer  service  related  to billing and
collections  issues.  In connection with the conversion of its business to a new
software application, as described above, the Company plans to implement the new
accounts  receivable application with respect to its PPO/indemnity plan designs.

The  Company  uses  a personal computer network-based general ledger system that
includes  reporting and analysis tools that allow the extraction and download of
data  to  spreadsheet  programs  for  further  analysis.  The Company also makes
extensive use of its email system in coordinating the activities of employees in
various  office  locations  and  communicating  with  customers,  brokers  and
providers.  The  Company recently implemented a Customer Relationship Management
system,  as  part  of its long-term information systems strategic plan, which it
uses  to  manage  customer  and  provider relationships. The Company also uses a
variety  of  other,  less  significant  applications  in  various  areas  of its
business. All of the Company's applications are integrated into a single network
so  employees  can  easily  access  any  needed  application  from their desktop
computers.  During 2000, the Company purchased a new computer to run its primary
business  applications,  which  has  significantly  faster  processors  and  a
significantly  larger  amount  of  storage capacity than the computer previously
used. The Company believes this computer will satisfactorily serve the Company's
needs  for at least the next two to three years, although the Company expects to
purchase  various  peripheral  hardware in connection with its conversion to the
new  software  application,  as  described  above.

The  Company  recently  converted a portion of the business that was acquired in
the Paramount transaction to its proprietary dental HMO system. A third software
application  is  used  by  the Company for the remaining portion of the acquired
business,  which consists of dental HMO benefit plans delivered to medical HMOs.
This  system  is  a  standard application purchased from a vendor, and generally
meets  the Company's needs for its products offered to medical HMOs. The Company
is  currently  evaluating whether to convert this portion of its business to the
new  software  application  purchased  in  2002.


                                       11
<PAGE>
RISK MANAGEMENT

Dentists  in  the Company's HMO and PPO networks generally indemnify the Company
against  professional liability claims and are required to maintain professional
liability insurance with specified minimum amounts of coverage. The Company also
maintains  $5  million of general and professional liability insurance coverage,
which  covers  losses on a "claims made" basis. The Company believes this amount
of  coverage  is  adequate  to  manage  the  ordinary  exposure of operating its
business.  However, there can be no assurance that this amount of coverage would
be  adequate  to  cover  potential  claims against the Company, or that adequate
general  and  professional liability insurance coverage will be available to the
Company  in  the  future  at  a  reasonable  cost.

Prior  to  October  2002,  the  Company  maintained  $5  million of officers and
directors  liability  insurance  coverage, after a $250,000 deductible. Due to a
significant  increase  in the cost of such insurance, the Company elected not to
purchase  this  insurance  coverage  effective  October  1,  2002.

COMPETITION

The  Company  operates  in  a  highly competitive environment and faces numerous
competitors  in  each  of  its  geographic  markets with respect to all products
offered by the Company. The Company's competitors include several large national
insurance  companies that offer dental HMO plan designs and dental PPO/indemnity
plan  designs, numerous regional insurance companies and medical HMOs that offer
dental  benefit  plans,  and  numerous  local  or regional dental HMOs and other
companies that offer various types of dental benefit plans. Many competitors are
significantly  larger than the Company, and have substantially greater financial
resources  than  the Company. In addition, many employers, union trust funds and
other  group  purchasers provide self-insured dental plans to their employees or
other  constituents.

The Company believes that the key factors in a purchaser's selection of a dental
benefit  plan  include  the  premium rates charged, the comprehensiveness of the
dental  benefits  offered,  the  range  of  benefit  designs  offered,  the
responsiveness  related  to  customer  service  activities,  and  the  perceived
quality,  accessibility  and  convenience  of the dental offices in the provider
network.  There are competitors that compete aggressively with respect to all of
these  factors  in each of the geographic markets in which the Company operates,
and  many  employers,  particularly  large  employers, make their selection of a
dental  benefit plan through a competitive bidding process. There is significant
price  competition  in  each  of  the  Company's geographic markets, which could
impair  the  Company's  ability  to  sell its dental benefit plans at profitable
premium rates. The Company anticipates that this price competition will continue
to  exist  during  the  foreseeable  future.

Large  national  insurance companies that offer both dental HMO plan designs and
dental  PPO/indemnity plan designs may have a competitive advantage over smaller
competitors, such as the Company, due to larger provider networks located across
the  United States, the availability of multiple product lines other than dental
benefits,  established  business relationships with large employers, better name
recognition, and greater financial and information system resources. The Company
believes it can effectively compete with these insurance companies by offering a
flexible  array  of  benefit  plan  designs,  and by maintaining a high level of
customer  service  with  respect to its employer groups, members, dental service
providers,  and  brokers.  Some medical HMOs have developed dental benefit plans
with  both HMO and PPO/indemnity plan designs in-house, and others contract with
dental  benefits  companies, such as the Company, to provide those products. The
Company  believes it can compete effectively with medical HMOs that offer dental
benefit  plans.  The  Company  currently  has relationships with certain medical
HMOs,  under  which the medical HMOs offer the Company's dental benefit plans to
their  customers,  and the Company intends to form relationships with additional
medical  HMOs  in  the  future.

Other  than  minimum net worth requirements imposed by state regulators, and the
need to obtain a license from the applicable state regulator, which could take a
substantial  period of time, there are no significant barriers to entry into the
dental  benefits  business  by  potential competitors. There can be no assurance
that  the Company will be able to compete successfully with any new competitors.
Additional  competition  could  adversely impact the Company's profitability and
growth  prospects  through decreases in premium rates, and the loss of customers
or  dental  service  providers.


                                       12
<PAGE>
GOVERNMENT REGULATION

The  Company's operations are subject to an extensive amount of state regulation
in  each  of  the  states  in  which it operates. The Company's most significant
dental  HMO  subsidiaries are subject to regulation by the California Department
of  Managed  Health  Care,  the  Florida  Department  of Insurance and the Texas
Department  of Insurance. In addition, several other subsidiaries of the Company
are  dental HMO plans that are licensed in the states in which they operate. The
Company's  dental  insurance subsidiary is regulated primarily by the California
Department  of  Insurance,  and is also subject to regulation by state insurance
regulatory  agencies  in  all  of  the  states  in  which  it  is  licensed.

The  Company's dental HMO subsidiaries are subject to regulations that vary from
state  to  state, and generally include regulations with respect to the scope of
benefits  provided  to  members,  the  content  of all contracts with customers,
dental  service  providers and others, advertising, the maintenance of a minimum
amount  of net worth, the maintenance of restricted deposits, procedures related
to  quality  assurance, enrollment procedures, the maximum percentage of premium
revenue  that  may be spent on general and administrative expenses, minimum loss
ratios,  certain  "any  willing  provider"  requirements  which  may  limit  the
Company's ability to restrict the size of its provider network, the relationship
between  the  Company  and  the  dentists in its provider network, the Company's
procedures  for  resolving  member  grievances,  and  premium  rates.

The  Company's  dental insurance subsidiary is subject to state regulations with
respect  to the maintenance of a minimum amount of net worth, the maintenance of
restricted  deposits  for the benefit of certain state regulators, the nature of
investments held by the Company, insurance policy forms, advertising, and claims
processing  procedures.  Insurance companies in general are subject to extensive
regulation  and  are  typically required to have significantly greater financial
resources  than  dental  HMOs.

The  Company's  ability  to expand its operations into states in which it is not
currently  licensed  is  dependent on the regulatory review process conducted by
the applicable state regulatory agency in each state. Such reviews may take from
six  to  twenty-four  months,  and  must  be satisfactorily completed before the
Company  could  commence  operations  in  the  applicable  state.

Since  some  states  will only license full service HMO entities, the Company is
not  able  to offer its dental HMO plan designs in those states, except pursuant
to  an  arrangement  with  a  full service medical HMO. Other states permit only
nonprofit  organizations  to become licensed as dental HMO plans, again limiting
the  Company's  access to business in those states. The heavily regulated nature
of  the  Company's  business  imposes  a  variety  of potential obstacles to any
geographic expansion by the Company, and could limit the Company's future growth
potential.  This  regulatory  environment also governs the conduct and expansion
prospects of existing and new competitors, thereby providing a potential barrier
to  entry  for  potential  competitors.

The  Company  is  subject to the Health Insurance Portability and Accountability
Act  of 1996 ("HIPAA"). HIPAA imposes responsibilities on the Company, including
but  not  limited  to,  privacy  notice requirements to members of the Company's
benefit  plans,  the  security  and  privacy of individually identifiable health
information,  the  use  of  unique  identifiers  for  all  of  the  contractual
relationships  the  Company has with members, providers and group and individual
contract holders, the adoption of standardized electronic transaction code sets,
and  prevention of unauthorized use or disclosure of personal data maintained by
the Company. The Company is in the process of developing policies and procedures
to  comply  with these requirements and has provided privacy notices as required
by  HIPAA  and  the  Gramm-Leach-Bliley  Act.

There  is currently no other regulation of the Company's business at the federal
level.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

The  Company  currently  markets  all  of  its  products  under  the brand names
"SafeGuard"  and  "Paramount  Dental  Plan."  The  Company  has  filed, received
approval,  and  obtained  renewal  protection  from the United States Patent and
Trademark  office  for certain trademarks and trade names for names and products
used  by  the  Company  in its ordinary course of business. The Company has also
received  approvals  for  the  use  of its trademarks and trade names from state
governmental  agencies,  as  applicable.  The  Company has received a trademark,
service  mark  or  trade  name for the following words and phrases used with and
without  distinctive  logos  maintained  by  the  Company:


                                       13
<PAGE>
-    SafeGuard(R)  used  with a distinctive logo depicting a modified smile used
     in  connection  with  all  the  products  offered  by  the  Company;

-    SafeGuard Health Plans(R)  used  in  descriptive  material  to describe the
     products  offered  by  the  Company;

-    SafeGuard  Dental  Plans(TM)  used  to describe the various dental HMO plan
     designs  offered  by  the  Company;

-    SafeHealth  Life(R) used with a descriptive logo depicting a modified smile
     used  by the Company to describe its dental PPO/indemnity plan designs; and

-    Paramount Dental Plan with a distinctive logo of three triangles stacked on
     top  of  each  other  used  by the Company in the integration of its recent
     acquisition  of  Paramount  into  the  Company's  Florida  operations.

Collectively, these trademarks, service marks and trade names were first used in
interstate  commerce  in  1984  and  have  been continuously used thereafter. In
addition,  the  Company  has received trademark/service mark protection from the
United  States  Assistant  Commissioner  for  Trademarks of its distinctive logo
depicting  a  smile  that  the  Company  is  currently  utilizing  in interstate
commerce.

EMPLOYEES

At  March  15,  2003,  the  Company  had  approximately  225 employees, of which
approximately  40  were  represented by a labor union. The Company considers its
relations  with  its  employees to be satisfactory. The Company provides typical
employee  benefits, including paid vacation, holiday and sick time, a portion of
the  cost  of  health  insurance,  dental and vision coverage for the employee's
family,  life  insurance,  a  401(k)  plan that includes a matching contribution
consisting  of the Company's common stock, and the opportunity to take advantage
of  a  flexible spending account under Section 125 of the Internal Revenue Code.
Employees  are  eligible  to  participate  in the 401(k) plan upon completion of
three  months of service with the Company. Under the 401(k) plan, an employee is
allowed  to  contribute up to 20% of his total compensation to the plan each pay
period, subject to the annual limit prescribed by the Internal Revenue Code, and
subject  to  certain anti-discrimination provisions. Effective July 1, 2001, the
Company adopted a matching contribution program, under which the Company makes a
contribution equal to a specified percentage of each employee's contribution, in
the  form  of common stock of the Company. The matching contribution percentage,
which  was  25%  for 2001 and 2002, is set in advance of each fiscal year by the
Company's  board  of  directors,  and  has been set at 25% for 2003. The Company
contributed  66,000  shares  and 33,000 shares of its common stock to the 401(k)
plan  for  the  years  ended  December  31,  2002  and 2001. The Company made no
contributions  to  the  plan  during the year ended December 31, 2000. Employees
become  vested  in the Company's contributions to the 401(k) plan at the rate of
20% for each of the first five years of employment with the Company, with credit
given for past service. Employees are fully vested in their contributions to the
401(k)  plan  at  all  times.

RISK FACTORS

The  Company's  business  and  competitive environment includes numerous factors
that  expose  the Company to risk and uncertainty. Some risks are related to the
dental  benefits  industry in general and other risks are related to the Company
specifically.  Due  to  the  risks and uncertainties described below, as well as
other risks described elsewhere in this Annual Report on Form 10-K, there can be
no  assurance  that  the  Company  will  be  able to maintain its current market
position  or  its  profitability.  Some of the risk factors described below have
adversely affected the Company's operating results in the past, and all of these
risk  factors  could  affect  its  future  operating  results.

Paramount Integration. The Company is in the process of integrating the business
operations  of  Paramount into the Company's operations. Due to the complexities
inherent  in  this  process, there is a risk that the Company may not be able to
complete  such  integration activities in a timely and effective manner. In such
case,  the  profitability  of  the  Paramount  operations  could  be  lower than
expected,  and  the  general and administrative expenses of the Company could be
higher  than  expected,  which  could  have  a  negative impact on the Company's
overall  profitability.

Operating  Losses. The Company incurred significant operating losses during each
of  the three years ended December 31, 2000. A number of actions have been taken
since  the beginning of 2000 to improve its profitability, including significant


                                       14
<PAGE>
rate  increases  for  unprofitable  customers,  reductions  in  certain types of
provider  payments, a decrease in the amount of office space used, consolidation
of  its administrative operations into one location which facilitated a decrease
in  the number of its employees, and decreases in various other selling, general
and  administrative  expenses.  The  Company was profitable during the two years
ended  December  31,  2002,  as shown in the accompanying consolidated financial
statements.  The  Company  plans  to  improve  its profitability through various
actions,  including  continuing  improvement  of  various  customer  service
activities,  further  streamlining  of  its  operations,  increasing  customer
retention,  increasing  its  volume  of  new  business,  the  development of new
products,  and  the completion of profitable acquisitions. However, there can be
no  assurance  that the Company will be successful in implementing those actions
or  maintaining  its  profitability.

Government  Regulation.  The  dental  benefits  industry is subject to extensive
state  and  local  laws,  rules and regulations. Each of the Company's operating
subsidiaries  is  subject  to  various  requirements  imposed  by state laws and
regulations  related to the operation of a dental HMO plan or a dental insurance
company,  including  the maintenance of a minimum amount of net worth by certain
subsidiaries.  In  addition, regulations applicable to dental benefits companies
could  be changed in the future. There can be no assurance that the Company will
be  able  to  meet  all  applicable  regulatory  requirements  in  the  future.

Health  Insurance  Portability  and  Accountability Act of 1996 ("HIPAA"). HIPAA
imposes  various  responsibilities  on  the  Company,  as  described above under
"Government  Regulation."  The  Company is in the process of developing policies
and  procedures  to comply with these requirements. The total cost of compliance
with  HIPAA is not known at this time. There is a risk that the Company will not
be able to successfully implement all of the HIPAA requirements. There is also a
risk that the cost of compliance with HIPAA could have a material adverse impact
on  the  Company's  financial  position.

Contingent  Lease  Obligations.  The  Company  sold  all  of  its general dental
practices  and  orthodontic  practices  in 1996, 1997 and 1998. The Company also
re-sold certain of these practices in October 2000, after the original purchaser
of a number of the practices defaulted on its obligations to the Company. All of
the office lease agreements related to those practices either have been assigned
to  the  respective purchasers of the practices, or have expired. As of December
31,  2002,  the Company is contingently liable for an aggregate of approximately
$3.3  million  of  office lease obligations related to those practices for which
the  leases  have  been  assigned. Although the leases have been assigned to the
purchasers of those practices, there can be no assurance that the persons and/or
entities  to  which  these  office  leases  were  assigned  will  make the lease
payments,  and  that  the  Company  will  not  become liable for those payments.

Payments  Due on Promissory Notes. In connection with the sale of certain dental
practices,  the  dentists  who  purchased  those  practices  issued  long-term
promissory  notes  to  the  Company,  which are secured by the assets purchased.
There  can be no assurance that each of these dentists will make timely payments
on  the  promissory  notes  in  the  future.

Possible  Volatility  of  Stock  Price. The market price of the Company's common
stock  has  fluctuated  significantly  during  the  past  few years. Stock price
volatility  can  be  caused  by  actual  or  anticipated variations in operating
results, announcements of new developments, actions of competitors, developments
in  relationships  with  clients,  and  other  events  or factors. Even a modest
shortfall  in  the  Company's operating results, compared to the expectations of
the investment community, can cause a significant decline in the market price of
the  Company's  common  stock.  In addition, the trading volume of the Company's
common stock is relatively low, which can cause fluctuations in the market price
and a lack of liquidity for holders of the Company's common stock. The fact that
the  Company's  common  stock  is  not listed on an exchange can have a negative
influence  on  the trading volume of the stock. Broad stock market fluctuations,
which may be unrelated to the Company's operating performance, could also have a
negative  effect  on  the  Company's  stock  price.

Competitive  Market.  The Company operates in a highly competitive industry. Its
ability  to operate on a profitable basis is affected by significant competition
for  employer  groups and for contracting dental providers. Dental providers are
becoming  more  sophisticated,  their  practices  are  busier, and they are less
willing  to  join  the  Company's  networks  under  capitation  arrangements  or
discounted  fees.  There can be no assurance the Company will be able to compete
successfully  enough  to be profitable. Existing or new competitors could have a
negative  impact  on  the Company's revenues, earnings and growth prospects. The
Company  expects  the  level  of  competition to remain high for the foreseeable
future.


                                       15
<PAGE>
Ability  to Maintain Revenue. The Company's premium revenue decreased from $84.8
million  in 2001 to $83.0 million in 2002, primarily due to the loss of a number
of  its  customers,  and  a  net  decrease  in  its  enrollment  within existing
customers.  The  Company  intends  to  expand  its business in the future and to
increase  its  annual revenue, but there can be no assurance the Company will be
able  to maintain its current level of revenue or increase it in the future. The
ability  of  the  Company  to  maintain  its  existing business or to expand its
business  depends  on  a  number  of  factors,  including  existing and emerging
competition,  its  ability to maintain its relationships with existing customers
and  brokers,  its ability to maintain competitive networks of dental providers,
its  ability to maintain effective control over the cost of dental services, and
its  ability  to  obtain  sufficient  working  capital to support an increase in
revenue.

Utilization  of  Dental  Care Services. Under the Company's dental PPO/indemnity
plan designs, the Company assumes the underwriting risk related to the frequency
and  cost  of  dental  care  services. If the Company does not accurately assess
these  underwriting  risks, the premium rates charged to its customers might not
be  sufficient  to  cover  the cost of the dental services delivered. This could
have  a  material  adverse  effect  on  the  Company's  operating  results.

Under  the  Company's  dental HMO plan designs, the Company assumes underwriting
risk  related  to  the  frequency  and  cost of specialist services, the cost of
supplemental  payments  made  to general dentists, and the frequency and cost of
dental services provided by general dentists with whom the Company does not have
standard  capitation  arrangements.  If  the  Company does not accurately assess
these  underwriting  risks, the premium rates charged to its customers might not
be  sufficient to cover the cost of the dental services delivered to subscribers
and  dependents.  This  could  have  a  material adverse effect on the Company's
operating  results.

Effect  of  Adverse  Economic  Conditions.  The  Company's  business  could  be
negatively  affected  by  periods  of  general  economic  slowdown, recession or
terrorist activities which, among other things, may be accompanied by layoffs by
the  Company's  customers, which could reduce the number of subscribers enrolled
in  the Company's benefit plans, and by an increase in the pricing pressure from
customers  and  competitors.

Relationships  with  Dental  Providers.  The  Company's  success is dependent on
maintaining competitive networks of dentists in each of the Company's geographic
markets. Generally, the Company and the network dentists enter into nonexclusive
contracts  that  may  be  terminated  by  either  party with limited notice. The
Company's  operating  results  could  be  negatively affected if it is unable to
establish  and  maintain  contracts  with  a  competitive  number of dentists in
locations that are convenient for the subscribers and dependents enrolled in the
Company's  benefit  plans.

Dependence  on Key Personnel. The Company believes its success is dependent to a
significant  degree  upon  the abilities and experience of its senior management
team.  The  loss  of  the services of one or more of its senior executives could
negatively  affect  the  Company's  operating  results.

RECAPITALIZATION TRANSACTION

On  March  1, 2000, the Company entered into a recapitalization transaction with
an  investor  group (the "Investors"), the revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form  of  an  investor  senior  loan,  due  April  30,  2001.  As  part  of this
transaction,  the  Investors,  the  Bank,  and  the Senior Note Holder agreed to
convert  the  $8.0 million investor senior loan, the outstanding balance of $7.0
million under the revolving credit facility plus accrued interest, and the $32.5
million  of senior notes payable plus accrued interest, to convertible preferred
stock,  subject  to regulatory approval and an increase in the authorized shares
of  the  Company's  common  stock.

Effective  as  of January 31, 2001, the Company completed the conversion of this
debt  into 30 million shares of convertible preferred stock. The estimated value
of  the convertible preferred stock was $1.375 per share as of January 31, 2001,
which is based on the closing price of the Company's common stock on January 31,
2001,  which  was  $1.375 per share, and the fact that each share of convertible
preferred  stock  is  convertible  into one share of common stock. Based on this
estimated  value, the conversion transaction resulted in a pre-tax gain of $11.3
million,  which is net of approximately $350,000 of transaction costs. There was
no  income  tax  effect  related  to  this transaction, due to the Company's net


                                       16
<PAGE>
operating  loss  carry-forwards for tax purposes, as discussed in Note 13 to the
accompanying  consolidated  financial  statements.

The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred  stock is convertible into one share of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining  two  directors. The convertible preferred stock has a $30
million  liquidation  preference  over  the  Company's  common  stock.

As  a  result  of  the  conversion  transaction,  the  ownership interest of the
previously  existing  common  stockholders  of  the  Company  was  reduced  to
approximately  14%  of the common stock interests of the Company. In March 2000,
in connection with the recapitalization transaction, the Company agreed to place
four new directors, who represented the Investors, the Bank, and the Senior Note
Holder,  on  its board of directors. Three of those directors were placed on the
board  in  March  2000,  and  the  fourth director was placed on the board as of
January  31,  2001,  at  which time the Bank sold its interest in the Company to
other  existing  stockholders. These four new directors constitute a majority of
the  board  of  directors,  which  currently  has  a  total  of  seven  members.

In  1999,  in  connection  with a restructuring of the senior notes payable, the
Company issued warrants to purchase 382,000 shares of its common stock for $4.51
per  share  to  the Senior Note Holder. The warrants were canceled without being
exercised,  in  connection  with the conversion of the senior notes payable into
convertible  preferred  stock  effective  January  31,  2001.

DIVESTITURE OF DENTAL PRACTICES

The  Company sold all of its general dental practices in 1996 and 1997, and sold
all  of  its  orthodontic  practices  in  1998.  Certain  of  the general dental
practices  and  all of the orthodontic practices were sold to a single purchaser
(the  "Purchaser"),  in  exchange  for long-term promissory notes. The Purchaser
ultimately defaulted on its obligations to the Company, and in October 2000, the
Company  completed a transaction with the Purchaser and another third party (the
"New  Purchaser"),  in which the practices originally sold to the Purchaser were
sold  to  the  New Purchaser. In this transaction, the Purchaser transferred its
interest  in  the dental and orthodontic practices to the New Purchaser, the New
Purchaser paid $2.4 million to the Company and placed an additional $1.5 million
in  an  escrow account for the benefit of the Company, and the Company agreed to
pay  certain obligations related to these practices. These obligations consisted
primarily  of payroll, dental office lease obligations, patient refunds, and the
obligation  to  complete  the orthodontic treatments for dental HMO patients who
previously  paid  for the treatments in full. These obligations either had to be
paid  in  order  to  complete the transaction, or were obligations for which the
Company  could have been contingently liable in any event. The remaining cost of
the  obligations  assumed  by  the  Company  are  reflected  on  the  Company's
consolidated  balance  sheet  based  on  the Company's best estimates, but these
amounts  are  subject  to  various uncertainties. See Note 8 to the accompanying
consolidated  financial  statements  for a discussion of impairment charges that
were  recognized  in  2000  in  connection  with  this  transaction.

ITEM 2. PROPERTIES
------------------

The  Company  leases a total of approximately 68,000 square feet of office space
in  a  single  location in Aliso Viejo, California, under a lease agreement that
expires in 2008. Approximately 12,000 square feet of this space is not currently
used  by the Company, but is subleased to unrelated third parties. The remaining
56,000  square  feet  of  office  space  is  used  for  the  Company's corporate
headquarters  and  its  National  Service Center, which includes member services
activities,  eligibility  file  maintenance,  billing  and  collections,  claims
processing and other similar customer support activities, and for its California
regional  office.  In addition, the Company leases office space in Walnut Creek,
California; Coral Springs and Tampa, Florida; and Dallas and Houston, Texas. The
Company  leased  all of the office space used by its previously owned dental and
orthodontic  practices.  The Company remains contingently liable for a number of
these  leases,  which expire on various dates through 2007, as discussed in Note
14  to  the  accompanying  consolidated  financial statements. In the opinion of
management,  the  Company's  facilities  are  adequate  for  its  current needs.


                                       17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-------------------------

The  Company  is  subject  to  various  claims  and legal actions arising in the
ordinary  course of business. The Company believes all pending claims either are
covered  by  liability insurance maintained by the Company or by dentists in the
Company's  provider  network,  or will not have a material adverse effect on the
Company's  consolidated  financial  position  or  results  of  operations.

In  December  1999,  a  stockholder lawsuit against the Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  In  September  2000,  after  the  plaintiffs  had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company and its officers. In October 2000, the plaintiffs filed an appeal of the
dismissal of the lawsuit, and the dismissal was overturned in February 2002. The
case  was  remanded  back  to  the District Court with instructions to allow the
plaintiff  to  file  a  second  amended  complaint.  Subsequently,  the  Company
conducted  mediation  and reached an agreement with the plaintiffs to settle the
lawsuit  for  a payment of $1.25 million to the plaintiffs, without an admission
of  liability by any party. The agreement between the Company and the plaintiffs
was approved by the District Court in September 2002. The Company's insurer paid
$1.0  million of the cost of the settlement. Accordingly, the Company recorded a
$250,000  expense during the three months ended June 30, 2002, which is included
in  selling, general and administrative expense in the accompanying consolidated
statement  of  operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------------------

(a)  MARKET INFORMATION

The  Company's  common  stock  is traded on the NASDAQ Over The Counter Bulletin
Board  under  the  symbol  SFGD. The following table sets forth the high and low
sale  prices  of  the  Company's  common stock each calendar quarter. The prices
shown  are  based  on transactions between market makers in the Company's stock,
and  do  not  necessarily  represent transactions between non-dealer principals.

                                                HIGH     LOW
                                               ------  -------

     Year ended December 31, 2003:
       First Quarter, through March 15, 2003.  $ 1.25   $ 1.16

     Year ended December 31, 2002:
       First Quarter. . . . . . . . . . . . .  $ 1.95   $ 1.19
       Second Quarter . . . . . . . . . . . .    1.45     1.25
       Third Quarter. . . . . . . . . . . . .    1.40     1.15
       Fourth Quarter . . . . . . . . . . . .    1.35     1.15

     Year ended December 31, 2001:
       First Quarter. . . . . . . . . . . . .  $ 2.75   $ 0.88
       Second Quarter . . . . . . . . . . . .    1.80     1.25
       Third Quarter. . . . . . . . . . . . .    2.00     1.15
       Fourth Quarter . . . . . . . . . . . .    2.40     1.17

(b)  HOLDERS

As  of  March  15,  2003,  there were approximately 800 holders of the Company's
common  stock,  including approximately 500 holders of record, and 21 holders of
the  Company's  convertible  preferred  stock.


                                       18
<PAGE>
(c)  DIVIDENDS

No  cash dividends have been paid on the Company's common stock, and the Company
does  not  expect  to  pay  cash  dividends  during  the foreseeable future. The
Company's  convertible  preferred  stock  does not accrue dividends of any kind.

STOCKHOLDER RIGHTS PLAN

In  March 1996, the board of directors of the Company declared a dividend of one
right  to  purchase  a  fraction of a share of its Series A Junior Participating
Preferred  Stock,  having  rights,  preferences,  privileges and restrictions as
designated,  and  under  certain  circumstances,  other  securities,  for  each
outstanding share of the Company's common stock. The dividend was distributed to
stockholders  of  record  at the close of business on April 12, 1996. The Rights
become  exercisable  upon  the occurrence of certain defined events related to a
possible  change  of  control  of  the Company. The description and terms of the
Rights  are  set  forth  in  a  Rights Agreement, dated as of March 22, 1996, as
amended,  between  the Company and American Stock Transfer and Trust Company, as
Rights  Agent.  The  Rights  Agreement  may be amended by the Company's board of
directors  without  the approval of the Rights holders, at any time prior to the
Rights  becoming  exercisable. The Rights Agreement was amended in March 2000 to
specify  that the recapitalization transaction initiated in March 2000 would not
cause  the  Rights  to  become  exercisable.


                                       19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------

The  selected financial data in the following table was derived from the audited
consolidated  financial  statements  of the Company. This data should be read in
conjunction  with  such consolidated financial statements and notes thereto, and
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations.

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                       ---------------------------------------------------
STATEMENT OF OPERATIONS DATA                             2002      2001      2000       1999       1998
                                                       --------  --------  ---------  ---------  ---------
<S>                                                    <C>       <C>       <C>        <C>        <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA):
Premium revenue, net                                   $83,043   $84,822   $ 97,251   $ 96,225   $ 97,449

Health care services expense                            57,937    58,692     68,568     69,528     66,020
Selling, general and administrative expense             24,540    25,391     31,203     35,072     36,259
Loss on impairment of assets (1)                           334        --        450     24,576      2,397
                                                       --------  --------  ---------  ---------  ---------
  Operating income (loss)                                  232       739     (2,970)   (32,951)    (7,227)
Investment and other income                                607     1,060      1,431      2,067        624
Interest expense                                          (232)     (504)    (4,913)    (5,855)    (4,311)
                                                       --------  --------  ---------  ---------  ---------
Income (loss) before income taxes, discontinued
  operations and extraordinary item                        607     1,295     (6,452)   (36,739)   (10,914)
Income tax expense (benefit) (2)                          (820)       --         --     10,934     (3,406)
                                                       --------  --------  ---------  ---------  ---------
Income (loss) before discontinued
  operations and extraordinary item                      1,427     1,295     (6,452)   (47,673)    (7,508)
Discontinued operations:
  Loss from assets transferred under contractual
    arrangements (3)                                        --        --     (2,500)    (4,363)        --
  Loss from operations to be disposed of (4)                --        --         --         --     (2,430)
Extraordinary item:
  Gain on conversion of debt to
    convertible preferred stock (5)                         --    11,251         --         --         --
                                                       --------  --------  ---------  ---------  ---------
  Net income (loss)                                    $ 1,427   $12,546   $ (8,952)  $(52,036)  $ (9,938)
                                                       ========  ========  =========  =========  =========

Basic net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                  $  0.04   $  0.04   $  (1.36)  $ (10.04)  $  (1.58)
  Loss from discontinued operations                         --        --      (0.53)     (0.92)     (0.51)
  Extraordinary item                                        --      0.35         --         --         --
                                                       --------  --------  ---------  ---------  ---------
    Net income (loss) per basic share                  $  0.04   $  0.39   $  (1.89)  $ (10.96)  $  (2.09)
                                                       ========  ========  =========  =========  =========
  Weighted average basic shares outstanding (6)         35,130    32,253      4,747      4,747      4,747

Diluted net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                  $  0.04   $  0.04   $  (1.36)  $ (10.04)  $  (1.58)
  Loss from discontinued operations                         --        --      (0.53)     (0.92)     (0.51)
  Extraordinary item                                        --      0.34         --         --         --
                                                       --------  --------  ---------  ---------  ---------
    Net income (loss) per diluted share                $  0.04   $  0.38   $  (1.89)  $ (10.96)  $  (2.09)
                                                       ========  ========  =========  =========  =========
  Weighted average diluted shares outstanding           35,638    33,009      4,747      4,747      4,747

BALANCE SHEET DATA AS OF DECEMBER 31 (IN THOUSANDS):

Cash and short-term investments                        $12,704   $15,453   $ 16,702   $  6,281   $  4,935
Current assets                                          16,111    19,195     21,268     10,380     13,411
Total assets                                            34,114    29,325     33,095     28,577     78,749
Current liabilities (5)                                 14,093    14,988     72,180     18,129     25,314
Long-term debt and capital lease obligations             2,997        --        265     39,545     32,500
Other long-term liabilities                              1,013       971      1,079      2,517      1,169
Stockholders' equity (deficit)                          16,011    13,366    (40,429)   (31,614)    19,766

                                 See note explanations on the following page.
</TABLE>


                                       20
<PAGE>
NOTE EXPLANATIONS TO SELECTED FINANCIAL DATA:

(1)  Represents  reductions  in  the carrying value of notes receivable in 2000,
     goodwill  in  1999,  and notes receivable and real estate in 1998, to their
     estimated  realizable  values.  See Note 8 to the accompanying consolidated
     financial  statements.
(2)  The  2002  amount  primarily  represents  a  decrease  in  the  accrual for
     estimated  income  tax  liabilities  related  to  certain transactions that
     occurred  in  prior years. The 1999 amount primarily represents a charge to
     establish  a  valuation allowance against net deferred tax assets. See Note
     13  to  the  accompanying  consolidated  financial  statements.
(3)  Represents  reductions  in  the carrying value of the net assets related to
     the  dental  practices  sold to the Purchaser to their estimated realizable
     value.  See  Note  8 to the accompanying consolidated financial statements.
(4)  Represents operating losses related to discontinued operations prior to the
     date  they  were sold, and subsequent expenses related to those operations.
     See  Note  3  to  the  accompanying  consolidated  financial  statements.
(5)  Effective  January  31, 2001, the Company completed the conversion of $47.5
     million  of  debt  and  $5.3  million  of  accrued interest (which includes
     $321,000  of  interest  expense  incurred  in January 2001) into 30 million
     shares  of  convertible preferred stock, resulting in an extraordinary gain
     of  $11.3  million,  net  of  transaction  expenses.
(6)  Includes  the  common share equivalents of the convertible preferred stock,
     because the Company believes the convertible preferred stock is essentially
     equivalent to common stock, based on all the rights and preferences of both
     types  of  stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The  Private  Securities  Litigation Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements,  as long as those statements are identified as
forward-looking  and  are  accompanied  by  meaningful  cautionary  statements
identifying  important  factors  that  could  cause  actual  results  to  differ
materially  from  those discussed in the statements. The Company desires to take
advantage of these safe harbor provisions. The information in the "Risk Factors"
section  of  Item  1  of  this Form 10-K should be read in conjunction with this
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations  ("MD&A").

The statements contained in this MD&A concerning expected growth, the outcome of
business  strategies,  future operating results and financial position, economic
and  market  events  and  trends,  future  premium  revenue,  future health care
expenses,  the  Company's  ability  to control health care, selling, general and
administrative expenses, and all other statements that are not historical facts,
are  forward-looking  statements.  Words such as expects, projects, anticipates,
intends,  plans,  believes,  seeks or estimates, or variations of such words and
similar  expressions,  are also intended to identify forward-looking statements.
These forward-looking statements are subject to significant risks, uncertainties
and  contingencies,  many of which are beyond the control of the Company. Actual
results  may  differ  materially  from  those  projected  in the forward-looking
statements,  which  statements  involve  risks  and  uncertainties.

All of the risks set forth in the "Risk Factors" section of this Form 10-K could
negatively  impact  the  earnings  of  the  Company in the future. The Company's
expectations  for the future are based on current information and its evaluation
of  external  influences.  Changes in any one factor could materially impact the
Company's expectations related to revenue, premium rates, benefit plans offered,
membership  enrollment,  the  amount  of  health  care  expenses  incurred,  and
profitability, and therefore, affect the forward-looking statements which may be
included  in  this  report.  In  addition,  past  financial  performance  is not
necessarily  a  reliable indicator of future performance. An investor should not
use  historical  performance alone to anticipate future results or future period
trends  for  the  Company.

CRITICAL ACCOUNTING POLICIES

The  Company's consolidated financial statements are prepared in accordance with
accounting  principles  generally  accepted  in  the  United  States of America.
Application  of  those  accounting  principles includes the use of estimates and
assumptions  that  are  made  by  management, and which the Company believes are
reasonable  based  on the information available. These estimates and assumptions
affect the reported amounts of assets, liabilities, revenues and expenses in the
accompanying  consolidated  financial  statements. The Company believes the most
critical  accounting  policies  used  to  prepare  the accompanying consolidated
financial  statements  are  the  following:


                                       21
<PAGE>
INVESTMENTS

The  Company  has  classified  all  of  its investments as "available-for-sale."
Accordingly,  investments  are  carried  at  fair  value, based on quoted market
prices,  and  unrealized  gains  and losses, net of applicable income taxes, are
reported  in  a separate caption of stockholders' equity. In the event there was
an  unrealized  loss on an investment that the Company believed to be other than
temporary, the loss would be reported in the statement of operations, instead of
in  a  separate  caption of stockholders' equity. As of December 31, 2002, there
were  no unrealized losses that the Company believed to be other than temporary.

ACCOUNTS RECEIVABLE

Accounts  receivable  represent uncollected premiums related to coverage periods
prior  to  the  balance  sheet date, and are stated at the estimated collectible
amounts,  net  of  an allowance for bad debts. The Company continuously monitors
the  timing  and  amount of its premium collections, and maintains a reserve for
estimated  bad  debt losses. The amount of the reserve is based primarily on the
Company's historical experience and any customer-specific collection issues that
are identified. The Company believes its reserve for bad debt losses is adequate
as  of  December  31, 2002. However, there can be no assurance that the bad debt
losses ultimately incurred will not exceed the reserve for bad debts established
by  the  Company.

NOTES RECEIVABLE

Notes  receivable  are  stated  at  their estimated realizable values, net of an
allowance  for  bad  debts.  The Company continuously monitors its collection of
payments on the notes receivable, and maintains a reserve for estimated bad debt
losses. The amount of the reserve is based primarily on the Company's historical
experience  in  collecting  similar  notes  receivable  that  are  no  longer
outstanding,  and any available information about the financial condition of the
note  issuers,  although the Company has access to very little such information.
The  Company believes its reserve for bad debt losses is adequate as of December
31,  2002.  However, there can be no assurance that the Company will realize the
carrying  amount  of  its  notes  receivable.

GOODWILL

Goodwill as of December 31, 2002 consists of $4.7 million of goodwill related to
the  acquisition  of  Paramount  Dental Plan, Inc. ("Paramount") in August 2002,
which  is  discussed  in  Note  2  to  the  accompanying  consolidated financial
statements,  and  $3.9  million  of  goodwill  related  to  the acquisition of a
Texas-based  dental  HMO  company  in  1996.  In  the  case of each acquisition,
goodwill  represents  the  excess  of the purchase price of the acquired company
over  the  fair  value  of  the net assets acquired, and in the case of the 1996
acquisition, the balance is net of accumulated amortization and an adjustment in
1999  to  reduce  the carrying value of the goodwill to its estimated realizable
value.  The  Company estimated that the goodwill related to the 1996 acquisition
had  a  useful  life  of  40  years  from the date of acquisition of the related
entity,  and  amortized the goodwill over that period through December 31, 2001.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill  and  Other  Intangible  Assets,"  the  Company  ceased amortizing its
goodwill  effective  January  1,  2002.

SFAS  No. 142 requires that all goodwill be evaluated for possible impairment as
of  January  1,  2002, on an annual basis thereafter, and any time an event that
may  have  affected  the  value  of  the  goodwill  occurs.  SFAS  No.  142 also
establishes  a  new  method  of testing for possible impairment. The Company has
established  October 1 as the date on which it conducts its annual evaluation of
goodwill  for  possible impairment. In accordance with SFAS No. 142, the Company
tested its goodwill for possible impairment by estimating the fair value of each
of  its  reporting  units that include goodwill, and comparing the fair value of
each  reporting unit to the book value of the net assets of each reporting unit.
The fair value of each reporting unit was determined primarily by estimating the
discounted future cash flows of the reporting unit, and by estimating the amount
for  which  the reporting unit could be sold to a third party, based on a market
multiple  of  earnings.  The  Company  had  no  impairment of its goodwill as of
January  1,  2002,  or as of October 1, 2002, based on the method of testing for
possible  impairment  established by SFAS        No. 142. The estimates to which
the  results  of  the  Company's  test  are the most sensitive are the amount of
shared  administrative expenses that are charged to each reporting unit, and the
market  multiple  of  earnings  that  is used to estimate the fair value of each
reporting  unit.  The  Company  believes  the  estimates  used  in  its test are
reasonable  and  appropriate,  but  a  significant  change  in  either  of these
estimates  could  result  in  the  indication  of an impairment of goodwill. The


                                       22
<PAGE>
Company is not aware of any events that have occurred since October 1, 2002 that
may  have affected the value of its goodwill. However, there can be no assurance
that  impairment  will  not  occur  in  the  future.

INTANGIBLE ASSETS

Intangible  assets as of December 31, 2002 consist of customer relationships and
other intangible assets with an aggregate net book value of $2.0 million, all of
which  were  acquired  in connection with the acquisition of Paramount in August
2002,  as  discussed  in  Note  2  to  the  accompanying  consolidated financial
statements.  The  amount of the purchase price that was allocated to each of the
intangible  assets was equal to the Company's estimate of the fair value of each
asset.  Each  intangible asset is being amortized over its estimated useful life
on  a  straight-line  basis.

CLAIMS PAYABLE AND CLAIMS INCURRED BUT NOT REPORTED

The  estimated liability for claims payable and claims incurred but not reported
("IBNR")  is based primarily on the average historical lag time between the date
of service and the date the related claim is paid by the Company, and the recent
trend  in  payment  rates  and the average number of incurred claims per covered
individual.  Since  the liability for claims payable and claims incurred but not
reported  is  an  actuarial  estimate,  the amount of claims eventually paid for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.

RECOGNITION OF PREMIUM REVENUE

Premium  revenue  is  recognized  in  the period during which dental coverage is
provided to the covered individuals. Payments received from customers in advance
of the related period of coverage are reflected on the accompanying consolidated
balance  sheet  as  deferred  premium  revenue.

INCOME TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  liabilities  and  assets for the expected future tax consequences of events
that  are  recognized in the Company's financial statements in different periods
than  those in which the events are recognized in the Company's tax returns. The
measurement  of deferred tax liabilities and assets is based on current tax laws
as  of the balance sheet date. The Company records a valuation allowance related
to  deferred  tax assets in the event that available evidence indicates that the
future  tax  benefits  related  to  deferred  tax  assets may not be realized. A
valuation  allowance  is  required  when  it  is  more  likely than not that the
deferred  tax  assets  will  not  be  realized.

The  Company's  net deferred tax assets have been fully reserved since September
30,  1999, due to uncertainty about whether those net assets will be realized in
the  future.  The  uncertainty  is  primarily due to cumulative operating losses
incurred  by the Company during the period from January 1, 1998, to December 31,
2002,  and  the  existence  of  significant  net  operating  loss carryforwards.

INCOME (LOSS) PER SHARE

Income  (loss) per share is presented in accordance with SFAS No. 128, "Earnings
Per  Share."  Basic  earnings  (loss) per share is based on the weighted average
common  shares  outstanding,  including  the  common  shares  into  which  the
convertible  preferred  stock  is convertible, but excluding the effect of other
potentially  dilutive  securities. The number of basic common shares outstanding
includes  the  common  share  equivalents  of  the  convertible preferred stock,
because  the  Company  believes  the  convertible preferred stock is essentially
equivalent  to  common  stock,  based  on all the rights and preferences of both
types  of  stock.  Diluted  net  income  (loss)  per  share  is  based  on  the
weighted-average  common  shares  outstanding,  including  the  effect  of  all
potentially dilutive securities. During the three years ended December 31, 2002,
the  potentially  dilutive  securities  of  the  Company  that  were outstanding
consisted  of  stock  options,  convertible  notes,  and  warrants.  The  only
convertible  notes  issued  by  the  Company  were the two (2) convertible notes
issued during the three months ended September 30, 2002, as discussed in Notes 2
and  10  to  the  accompanying  consolidated financial statements. Both of these
convertible  notes would have an anti-dilutive effect on net income per share in


                                       23
<PAGE>
2002.  Accordingly, they are excluded from the calculation of diluted net income
per  share  for this period. The calculation of diluted net income per share for
the  years  ended  December  31,  2002  and  2001  includes  the  effect  of all
outstanding  stock options with an exercise price below the average market price
of  the  Company's  common  stock  during each period. There were no outstanding
stock  options or warrants with an exercise price below the average market price
of  the  Company's  common  stock  during  the  year  ended  December  31, 2000.
Accordingly,  the  Company's diluted net loss per share is the same as its basic
net loss per share for that period. The only warrants issued by the Company were
canceled  without  being  exercised  effective January 31, 2001, as discussed in
Note  11  to  the  accompanying  consolidated  financial  statements.

SUMMARY OF RESULTS OF OPERATIONS

The following table shows the Company's results of operations as a percentage of
revenue,  and  is  used  in  the  year-to-year  comparisons  discussed  below.

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                                 ------------------------
                                                   2002    2001    2000
                                                 -------  ------  -------
<S>                                               <C>     <C>     <C>
Premium revenue, net                              100.0%  100.0%   100.0%

Health care services expense                       69.8    69.2     70.5
Selling, general and administrative expense        29.5    29.9     32.1
Loss on impairment of assets                        0.4      --      0.5
                                                 -------  ------  -------

Operating income (loss)                             0.3     0.9     (3.1)

Investment and other income                         0.7     1.2      1.5
Interest expense                                   (0.3)   (0.6)    (5.0)
                                                 -------  ------  -------
Income (loss) before income taxes, discontinued
  operations and extraordinary item                 0.7     1.5     (6.6)
Income tax expense (benefit)                       (1.0)     --       --
                                                 -------  ------  -------
Income (loss) before discontinued
  operations and extraordinary item                 1.7     1.5     (6.6)
Loss from discontinued operations                    --      --     (2.6)
Extraordinary item                                   --    13.3       --
                                                 -------  ------  -------

Net income (loss)                                   1.7%   14.8%   (9.2)%
                                                 =======  ======  =======
</TABLE>

2002 COMPARED TO 2001

Premium  revenue  decreased by $1.8 million, or 2.1%, from $84.8 million in 2001
to  $83.0 million in 2002. The average membership for which the Company provided
dental  coverage  was  approximately  616,000  members  during 2002, compared to
615,000  members  during  2001.  Average  membership  increased  in  2002  by
approximately 80,000 members due to the Paramount acquisition, but this increase
was  offset  by  the  loss  of  a  number  of the Company's customers, and a net
decrease  in  its  enrollment  within  retained  customers.  The  operations  of
Paramount  are  included  in  the accompanying consolidated financial statements
beginning  on  September  1, 2002. The Paramount acquisition added approximately
240,000  members  to  the  Company  during  the  last four months of 2002, which
resulted in an average increase of 80,000 members for the full year. The Company
believes  the  net  decrease  in  its  enrollment  within  retained customers is
primarily  due  to reduced employment levels within its customers due to general
economic  conditions,  and to reduced enrollment in the Company's dental benefit
plans  due  to  significant  increases  in the cost of medical coverage. Premium
revenue  decreased  by  2.1%  in  2002  even  though  average  membership  was
approximately  the  same  in both years. This was primarily due to the Paramount
acquisition,  as  the  business  acquired  from  Paramount  consists  largely of
products  that  have  significantly  lower  premium  rates  than  the  Company's
pre-existing  business.  Substantially  all of the Company's premium revenue was
derived  from dental benefit plans in 2002 and 2001. Premium revenue from vision
benefit  plans  and  other  products  was  not  material  in  2002  or  2001.

Health  care  services  expense  decreased  by $0.8 million, or 1.3%, from $58.7
million  in  2001  to  $57.9  million in 2002. Health care services expense as a
percentage  of  premium revenue (the "loss ratio") increased slightly from 69.2%


                                       24
<PAGE>
in  2001  to  69.8%  in  2002.  The  business  acquired  from  Paramount  has  a
significantly  lower  loss ratio than the Company's pre-existing business, which
is  primarily  due  to  the  type of benefit plan designs sold by Paramount. The
effect of the Paramount acquisition on the loss ratio was offset by increases in
specialty  referral  services,  supplemental  payments,  and  discounted
fee-for-service  payments  to  dental HMO providers. The increase in the cost of
specialty  referral  services was due to an increase in the utilization rate for
those  services  in  2002. Supplemental payments are additional payments made to
dentists  who  are  compensated  primarily  through  capitation  payments,  in
connection with the delivery of certain dental procedures by those dentists. The
increases in supplemental and discounted fee-for-service payments were partially
due  to  high-cost arrangements with certain providers, which were started early
in  2002, and which were terminated prior to the end of 2002. These arrangements
resulted  in  an  unusually large amount of supplemental payments and discounted
fee-for-service  payments  in  2002.  There  was  also  a  general  increase  in
supplemental  payments  in  2002,  which  the  Company  believes  is due to more
comprehensive  submission  of  claims  information  by  the  dentists in its HMO
network.

Selling,  general and administrative ("SG&A") expense decreased by $0.9 million,
or 3.4%, from $25.4 million in 2001 to $24.5 million in 2002. SG&A expenses as a
percentage  of  premium  revenue  decreased from 29.9% in 2001 to 29.5% in 2002.
The  decrease  in  SG&A  expenses  is primarily due to decreases in depreciation
expense  and  furniture rent, and a $350,000 refund of maintenance fees from one
of  the  Company's vendors, which were partially offset by a $250,000 expense in
2002  related  to the settlement of stockholder litigation, as described in Note
14  to  the  accompanying  consolidated  financial  statements.  The decrease in
depreciation  expense  is primarily due to the fact that a significant component
of  the  Company's  computer  software became fully depreciated during 2002. The
decrease  in furniture rent was due to the purchase of the office furniture used
in  the  Company's  primary  administrative  office  through a new capital lease
during  the  second quarter of 2002, as discussed in Note 10 to the accompanying
consolidated  financial  statements.  The  related furniture was formerly leased
under  an  operating  lease with relatively expensive terms, compared to the new
capital lease. The new capital lease caused an increase in depreciation expense,
but  this  was  more  than  offset  by other decreases in depreciation, as noted
above.  The  refund of maintenance fees was primarily due to the settlement of a
dispute  over  the  amount  of equipment maintenance fees paid by the Company in
several  prior  years.

Loss  on  impairment  of assets increased from zero in 2001 to $334,000 in 2002.
The  loss  on impairment in 2002 is due to an increase in the reserve related to
notes  receivable,  as  discussed  in  Note  8  to the accompanying consolidated
financial  statements.

Investment and other income decreased by $0.5 million, from $1.1 million in 2001
to $0.6 million in 2002. This decrease is primarily due to realized gains on the
sale  of  investments  in  2001,  a  decrease  in  interest  rates on short-term
fixed-income  investments  during  the  past year, a decrease in interest income
from  notes  receivable,  due  to  the liquidation of a portion of the Company's
notes  receivable  during 2001, and a decrease in the amount of investments held
by  the  Company,  compared  to  the  prior  year. The decrease in the Company's
investments  was primarily due to significant reductions in accrued expenses and
claims payable and IBNR during both 2001 and 2002. By intentionally accelerating
its  payment  of  claims,  the Company intends to enhance its image among dental
providers.

Total  interest  expense decreased by $0.3 million, from $0.5 million in 2001 to
$0.2  million  in  2002, primarily due to the conversion of substantially all of
the  Company's debt into convertible preferred stock effective January 31, 2001,
which  eliminated  nearly  all  of  the  Company's  interest  expense.

Income  before income taxes decreased by $0.7 million, from $1.3 million in 2001
to  $0.6  million in 2002. Income before income taxes as a percentage of premium
revenue decreased from 1.5% in 2001 to 0.7% in 2002. This decrease was primarily
due  to  an increase in the loss ratio, which was partially offset by a decrease
in  SG&A  expense  as  a  percentage  of  premium  revenue.

There  was an income tax benefit of $820,000 in 2002, which primarily represents
a decrease in the Company's accrual for estimated income tax liabilities related
to certain transactions that occurred in prior years, as discussed in Note 13 to
the  accompanying consolidated financial statements. There was no current income
tax  expense  in 2002, due to temporary differences between income before income
taxes  for  accounting  purposes  and  taxable  income  for  tax purposes. Those
temporary  differences  resulted  in  a loss for tax purposes in 2002. There was
also  no  deferred  income  tax  expense in 2002, due to the valuation allowance
against  the  Company's  net deferred tax assets, as discussed in Note 13 to the
accompanying  consolidated  financial  statements.


                                       25
<PAGE>
2001 COMPARED TO 2000

Premium revenue decreased by $12.4 million, or 12.8%, from $97.3 million in 2000
to  $84.8 million in 2001. The average membership for which the Company provided
dental  coverage  decreased  by  approximately  190,000  members, or 23.6%, from
805,000  members during 2000 to 615,000 during 2001. The decrease in the average
number  of  members is primarily due to the loss of a number of customers during
2000  and  at  the  beginning  of  2001.  The Company believes the loss of these
customers  was  primarily  due to the Company's poor financial condition in late
1999  and  early  2000,  large premium increases necessary for clients with high
loss  ratios,  and  customer  service problems during 1999 and 2000. The Company
believes  it  significantly  improved  its financial condition by completing the
recapitalization transaction that was initiated in March 2000 (see Liquidity and
Capital  Resources below), and by implementing various cost reduction strategies
during  2000  and  2001.  The  Company  also  implemented  various  operational
improvements  during  2000  and  2001,  which it believes addressed and improved
customer  service. As a result, the Company believes its financial condition and
level  of  customer  service are no longer significant factors in its ability to
retain  its  existing  customers  or  to generate new customers. Premium revenue
decreased  by only 12.8% even though average membership decreased by 23.6%. This
was primarily due to increases in premium rates, and a shift in the type of plan
designs  toward  preferred  provider  ("PPO")/indemnity plan designs, which have
higher  premium  rates than HMO plan designs. Substantially all of the Company's
premium  revenue was derived from dental benefit plans in 2001 and 2000. Premium
revenue from vision benefit plans and other products was not material in 2001 or
2000.

Health  care  services  expense  decreased by $9.9 million, or 14.4%, from $68.6
million in 2000 to $58.7 million in 2001. The loss ratio decreased from 70.5% in
2000  to 69.2% in 2001. This decrease is primarily due to an increase in premium
rates,  and a reduction in certain types of non-standard payment arrangements to
dental  HMO  providers.  Those  non-standard  payment  arrangements  consisted
primarily  of  discounted  fee-for-service arrangements for dental services that
are  typically  delivered  through  capitation arrangements, and minimum monthly
capitation  payments,  regardless  of  the  number  of members enrolled with the
provider.  The  Company  reduced  its  expenses  related  to  these non-standard
arrangements  by  either negotiating a different arrangement with the providers,
or  terminating  the  arrangements  and  contracting with other providers. These
factors  were  partially  offset  by  a shift in the type of plan designs toward
PPO/indemnity  plan  designs,  which  have  a  higher  loss  ratio than HMO plan
designs.  However, PPO/indemnity plan designs also have a higher amount of gross
margin  (premium  revenue  less  health  care  services  expense)  per  insured
individual,  and  the Company believes they have significantly lower general and
administrative  expenses  than  HMO  plan  designs,  as  a percentage of premium
revenue.

SG&A  expense decreased by $5.8 million, or 18.6%, from $31.2 million in 2000 to
$25.4 million in 2001. SG&A expense as a percentage of premium revenue decreased
from  32.1%  in  2000  to  29.9%  in  2001.  The  decrease  in SG&A expense as a
percentage  of  premium revenue is due to cost reductions implemented in several
categories,  including equipment rent, depreciation expense, telecommunications,
property  rent,  and others. A portion of the decrease in SG&A expense is due to
decreases  in broker commissions, internal commissions, and premium taxes, which
are  all  related  to  the  12.8%  decrease  in  premium  revenue  in  2001.

Loss  on  impairment  of assets decreased from $450,000 in 2000 to zero in 2001.
The  loss  on impairment in 2000 is due to an increase in the reserve related to
notes  receivable,  as  discussed  in  Note  8  to the accompanying consolidated
financial  statements.

Investment  and  other  income  decreased  by  $0.3 million, or 25.9%, from $1.4
million  in  2000  to  $1.1 million in 2001. This decrease is primarily due to a
decrease  in  interest income from notes receivable, due to the liquidation of a
majority  of the Company's notes receivable during 2001 and 2000, and a decrease
in  interest  rates  on  fixed  income investments. These factors were partially
offset  by  realized  gains  on  the sale of investments in the first quarter of
2001.

Total interest expense decreased by $4.4 million, or 89.7%, from $4.9 million in
2000  to  $0.5  million  in  2001.  This  decrease  is  primarily  due  to  the
recapitalization  transaction  that  was  completed  effective January 31, 2001,
which converted substantially all of the Company's debt to convertible preferred
stock.  See  Note  11  to the accompanying consolidated financial statements for
more  information  on  this  transaction.

The income (loss) before income taxes, discontinued operations and extraordinary
item  improved from a loss of $6.5 million, or 6.6% of premium revenue, in 2000,
to income of $1.3 million, or 1.5% of premium revenue, in 2001.


                                       26
<PAGE>
This  improvement  was  primarily  due  to  a  $4.4 million decrease in interest
expense,  a  $5.8  million  decrease in SG&A expense, and a decrease in the loss
ratio  from  70.5%  in  2000  to 69.2% in 2001, which is equal to a $1.1 million
decrease  in  health  care  services  expense.

There  was  no income tax expense in 2001 and no income tax benefit in 2000. The
Company  had  no current income tax expense in 2001 due to temporary differences
between  income  before  income taxes for accounting purposes and taxable income
for  tax purposes, which resulted in a net loss for tax purposes. There was also
no  deferred  income  tax  expense  or  benefit  in  2001,  due to the valuation
allowance against the Company's net deferred tax assets, as discussed in Note 13
to  the  accompanying consolidated financial statements. There was no income tax
benefit  in  2000  because  the  Company  had  previously  used  all of its loss
carryback  opportunities, and because of the valuation allowance against its net
deferred  tax  assets.

The  loss  from  discontinued  operations decreased from $2.5 million in 2000 to
zero  in  2001. The loss in 2000 represents a reduction in the carrying value of
the  net  assets  related to certain dental and orthodontic practices, which the
Company  originally  sold  to  an unrelated party in 1997 and 1998. These assets
were  re-sold to another unrelated party in October 2000, as discussed in Note 3
to  the  accompanying  consolidated  financial  statements.

There was an $11.3 million extraordinary gain on the conversion of the Company's
debt  to  convertible  preferred  stock in 2001. See Note 11 to the accompanying
consolidated  financial  statements  for  more information on this extraordinary
gain.

LIQUIDITY AND CAPITAL RESOURCES

The Company's net working capital decreased from $4.2 million as of December 31,
2001  to  $2.0 million as of December 31, 2002, primarily due to the acquisition
of  Paramount  Dental  Plan,  Inc. ("Paramount") in August 2002, as discussed in
Note  2  to  the  accompanying  consolidated financial statements. The Paramount
acquisition decreased working capital by a total of $3.5 million, including $2.7
million  of  net  cash  used  in  the acquisition and the current portion of the
secured  convertible  note issued in the transaction, which is $0.8 million. The
impact  of  the  Paramount  acquisition  was  partially offset by an increase in
working  capital  due  to  net  income  of $1.5 million during 2002. The Company
borrowed  $2.0  million  of working capital in August 2002, but this increase in
working  capital  was  largely  offset by the current portion of the two capital
lease  obligations  entered  into  in  June 2002, as discussed in Note 10 to the
accompanying  consolidated financial statements, which was $1.0 million, and the
current  portion  of the unsecured convertible note issued in August 2002, which
was  $0.6  million.

The Company's total debt increased from $265,000 as of December 31, 2001 to $5.4
million  as  of December 31, 2002, primarily due to the $2.6 million convertible
note issued in the Paramount acquisition, the $2.0 million unsecured convertible
note  issued in August 2002, and the two capital leases noted above, which added
$1.8  million  of  debt  during  the second quarter of 2002. The Company made an
aggregate  of  $1.7  million  of  principal  payments  on debt and capital lease
obligations  during  2002.

In  August  2002,  the  Company  borrowed $2.0 million from one of its principal
stockholders,  which  was  used  to  increase  the Company's working capital, to
provide  for  the payments due under the two new capital leases discussed above,
and  to  provide  for  the  payments due under the settlement of the stockholder
litigation  discussed  in  Note  13  to  the accompanying consolidated financial
statements.  The  borrowing  was  made  under an unsecured convertible note that
bears  interest at 7.0% annually and is payable in 36 equal monthly installments
of  principal and interest, beginning in September 2002. The outstanding balance
under  the convertible note is convertible into common stock of the Company at a
conversion  price  of $1.625 per share, at any time after one year from the date
of  the  borrowing.

Effective  August  30, 2002, the Company acquired all of the outstanding capital
stock  of  Paramount  for  a  purchase  price  of  approximately  $6.7  million,
consisting  of  $3.0 million in cash, a secured convertible note for $2,625,000,
and  769,231  shares of the Company's common stock. The secured convertible note
bears interest at 7.0% annually, and is payable in 36 equal monthly installments
of  principal  and  interest, beginning in October 2002. The outstanding balance
under  the  secured  convertible  note  is  convertible into common stock of the
Company  at a conversion price of $1.625 per share, at any time after August 30,
2003.  The  convertible note is secured by the stock of the Company's dental HMO
subsidiary  in  Florida.  The  operations  of  Paramount  are  included  in  the
accompanying  consolidated  financial statements beginning on September 1, 2002.


                                       27
<PAGE>
Net cash provided by operating activities was $1.2 million during 2002, compared
to $0.7 million of net cash used by operating activities in 2001. This change is
primarily  due  to  a $0.6 million increase in deferred premium revenue in 2002,
compared to a $0.5 million decrease in deferred premium revenue in 2001, and the
fact  that  net cash used to reduce accrued expenses decreased from $2.1 million
in  2001  to $1.3 million in 2002. The changes in deferred revenue are primarily
due  to  changes  in the volume of individual plan customers who pay the Company
for  a year of coverage in advance. The volume of this business increased during
2002,  compared  to  a  decrease in the volume of this business during 2001. The
decrease  in  accrued  expenses  in  2001  was  primarily due to $1.3 million of
payments  made  to reduce the obligations assumed in connection with the re-sale
of  certain  dental  practices  in  October  2000, as described in Note 3 to the
accompanying  consolidated  financial  statements.  Claims  payable  and  claims
incurred  but  not  reported ("IBNR") decreased by $1.4 million in 2002 and $1.6
million  in  2001, primarily due to intentional decreases in the processing time
for  payment  of  provider  claims,  and in the case of 2001, partially due to a
decrease  in  the  Company's volume of PPO/indemnity business during the period.
Due  in part to the recent decline in interest rates on investments, the Company
has  adopted  the practice of paying all provider claims as rapidly as possible,
in  order  to  enhance  its  image  among  dental  providers.

Net  cash provided by investing activities was $0.8 million in 2002, compared to
$1.5  million  in  2001.  In  2002,  the  Company  had a net liquidation of $3.9
million of investments, the proceeds of which were used primarily to finance the
acquisition  of  Paramount  and capital expenditures. In 2001, the Company had a
net  liquidation  of  $1.3 million of investments and received $1.3 million from
the  liquidation  of certain of its notes receivable, the proceeds of which were
used  primarily  to  finance  capital  expenditures  and  a  reduction  in  bank
overdrafts,  as  discussed  below.

Net  cash  used  in  financing activities decreased from $0.7 million in 2001 to
$0.5  million in 2002. The net cash used in both 2001 and 2002 was primarily due
to  reductions  in  the  amount of bank overdrafts, which are due to outstanding
checks  not  yet  presented  for  payment.

A  summary  of  the  Company's  future commitments is as follows (in thousands):

<TABLE>
<CAPTION>
                                                        PAYMENTS DUE IN
                                          -------------------------------------------
                                          LESS THAN   1 TO 3    3 TO 5      MORE THAN
                                           ONE YEAR   YEARS      YEARS      FIVE YEARS   TOTAL
                                          ---------  -------  -----------  -----------  -------
<S>                                       <C>        <C>      <C>          <C>          <C>
  CONTRACTUAL OBLIGATIONS:
  Long-term debt                          $   1,461  $ 2,764  $        --  $        --  $ 4,225
  Capital lease obligations                   1,047      228           30           --    1,305
  Other long-term liabilities                    --      491          385          137    1,013
  Operating lease commitments, net            1,845    4,177        3,680        1,838   11,540
                                          ---------  -------  -----------  -----------  -------

    Total contractual obligations         $   4,353  $ 7,660  $     4,095  $     1,975  $18,083
                                          =========  =======  ===========  ===========  =======

  OTHER COMMITMENTS:
  Contingent liability for dental office
    leases assigned to other entities     $   1,369  $ 1,591  $       300  $        --  $ 3,260
   Contingent liability for subleased
    office space                                443      192           --           --      635
                                          ---------  -------  -----------  -----------  -------

    Total other commitments               $   1,812  $ 1,783  $       300  $        --  $ 3,895
                                          =========  =======  ===========  ===========  =======
</TABLE>

If  the  entities  to  which the dental office leases have been assigned fail to
make  a  significant  amount  of  the lease payments, this could have a material
adverse  affect  on  the  Company.  See Note 12 to the accompanying consolidated
financial  statements  for  more information on other long-term liabilities, and
see  Note  14 for more information on operating lease commitments and contingent
lease  obligations.

Several  of  the  Company's  subsidiaries  are subject to state regulations that
require them to maintain restricted deposits in the form of cash or investments.
The Company had total restricted deposits of $3.3 million and $2.8 million as of
December  31,  2002  and  2001,  respectively.

In  addition,  several  of  the  Company's  subsidiaries  are  subject  to state
regulations  that  require them to maintain minimum amounts of statutory capital
and  surplus.  The  aggregate  minimum  statutory  capital  and  surplus that is


                                       28
<PAGE>
required  with  respect to all of the Company's subsidiaries that are subject to
minimum  capital  and  surplus requirements was approximately $8.8 million as of
December  31,  2002.  The  aggregate  statutory  capital  and  surplus  in these
subsidiaries  as  of  December  31,  2002  was approximately $9.9 million.  As a
result  of  these  regulatory  requirements,  approximately $10.3 million of the
Company's  consolidated  stockholders'  equity  as  of December 31, 2002 was not
available  for  the  payment  of  dividends  to  the  Company's  stockholders.

The  Company's  primary  source  of  funds  is  cash  flows  from operations and
investment  income.  The  Company  believes  that cash flows from operations and
investment  income  will be adequate to meet the Company's cash requirements for
at  least  the  next twelve months, except for financing that may be required to
complete  potential  acquisitions.  The  Company does not expect any significant
changes in its cash requirements in the foreseeable future, except for a planned
increase  in  cash  used for capital expenditures in 2003 and any financing that
may  be  required  in  connection  with  potential  acquisitions.  The  Company
anticipates  that  its  cash  outlays  for capital expenditures, which were $0.4
million  during 2002, will increase in 2003 due to a planned conversion to a new
computer  software  application,  as  discussed  in  Note 10 to the accompanying
consolidated  financial  statements.

The Company believes it has adequate financial resources to continue its current
operations  for  the  foreseeable  future,  and that it will be able to meet its
financial  obligations  from  its  existing  financial resources and future cash
flows from its operations. However, there can be no assurance that the Company's
future  earnings  will  be adequate to make all of the payments on the Company's
obligations as they become due, or that there will not be unforeseen events that
could have a material adverse impact on the Company's financial position and the
adequacy  of  its  cash  balances.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to the accompanying consolidated financial statements for information
on  recent  accounting  pronouncements.

IMPACT OF INFLATION

The Company's operations are potentially impacted by inflation, which can affect
premium  rates,  health  care  services  expense,  and  selling,  general  and
administrative expense. The Company expects that its earnings will be positively
impacted by inflation in premium rates, because premium rates for dental benefit
plans  in  general  have  been  increasing due to inflation in recent years. The
Company  expects  that  its earnings will be negatively impacted by inflation in
health  care  costs, because fees charged by dentists and other dental providers
have  been  increasing due to inflation in recent years. The impact of inflation
on  the Company's health care services expense is mitigated in the short-term by
the  fact  that approximately 33% of total health care services expense consists
of  capitation (fixed) payments to providers. In addition, most of the Company's
selling,  general  and administrative expenses are impacted by general inflation
in  the  economy.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

The  Company is subject to risk related to changes in short-term interest rates,
due  to its investments in interest-bearing securities. As of December 31, 2002,
the  Company's  total investments were approximately $12.9 million. Therefore, a
one  percentage-point  change in short-term interest rates would have a $129,000
impact  on the Company's annual investment income. The Company is not subject to
a material amount of risk related to changes in foreign currency exchange rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

The Consolidated Financial Statements and the related Notes and Schedule thereto
filed  as  part  of  this  2002  Annual  Report  on  Form 10-K are listed on the
accompanying  Index  to  Financial  Statements  on  page  F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------------------
        AND FINANCIAL DISCLOSURES
        -------------------------

During  the  two  most  recent  fiscal  years, there have been no changes in the
Company's independent auditors or disagreements with such auditors on accounting
principles  or  financial  statement  disclosures.


                                       29
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  current  directors  and  executive  officers of the Company are as follows:

<TABLE>
<CAPTION>
             NAME              AGE                           POSITION
----------------------------  -----  --------------------------------------------------------------
<S>                           <C>    <C>
  James E. Buncher              66   President, Chief Executive Officer and Director
  Stephen J. Baker              45   Executive Vice President and Chief Operating Officer
  Ronald I. Brendzel, JD        53   Senior Vice President, General Counsel, Secretary and Director
  Dennis L. Gates, CPA          47   Senior Vice President, Chief Financial Officer and Director
  Kenneth E. Keating            39   Vice President, Marketing and Chief Marketing Officer
  Michael J. Lauffenburger      42   Chief Information Officer
  Barbara Lucci                 43   Vice President, Service Center Operations
  Michael B. Sutherland, DDS    56   Dental Director and Director of Quality Management
  Steven J. Baileys, DDS        49   Chairman of the Board of Directors
  Neil R. Anderson              47   Director
  Stephen J. Blewitt            43   Director (1)
  Leslie B. Daniels             55   Director (1)
<FN>
----------------
     (1)  Member, Compensation and Stock Option Committee, and Audit Committee.
</TABLE>

Mr. Buncher, Jack R. Anderson and Mr. Daniels became directors of the Company on
March  1,  2000,  in  connection  with the recapitalization transaction that was
initiated  on March 1, 2000 (see Recent Developments for more discussion of this
transaction).  Mr. Blewitt became a director of the Company on February 8, 2001,
in  connection  with the completion of the recapitalization transaction. Jack R.
Anderson  resigned from his position as a director effective March 11, 2003, and
Neil  R.  Anderson  became a director effective March 13, 2003. All directors of
the  Company are elected annually. Officers of the Company serve at the pleasure
of  the  board  of  directors. See Item 11. - Executive Compensation below for a
description  of  severance  agreements  with  certain  executive  officers.

Mr.  Buncher  has  been President and Chief Executive Officer, and a director of
the Company, since March 2000. From July 1998 to February 2000, he was a private
investor.  Mr.  Buncher  was  President and Chief Executive Officer of Community
Dental  Services,  Inc., a corporation operating dental practices in California,
from  October  1997  until  July  1998.  Mr. Buncher was President of the Health
Plans  Group  of  Value Health, Inc., a national specialty managed care company,
from  September  1995  to  September  1997. He served as Chairman, President and
Chief  Executive  Officer  of  Community  Care  Network,  Inc.,  a  Value Health
subsidiary,  from  August 1992 to September 1997, when Value Health was acquired
by  a third party and Mr. Buncher resigned his positions with that company.  Mr.
Buncher currently serves on the board of directors of Horizon Health Corporation
and  one  other  non-public  health  care  company.

Mr.  Baker  has  been Executive Vice President and Chief Operating Officer since
April  2001,  when he joined the Company. Prior to joining the Company, he was a
consultant  to the senior management of the Company from September 2000 to March
2001.  Mr.  Baker  was  Vice  President,  Chief  Operating  Officer  and  Chief
Information  Officer  for  Novaeon,  Inc.,  a  national  health  and  disability
management  company,  from September 1999 to August 2000.  He was an independent
management  consultant  from  September 1997 to August 1999.  Mr. Baker was Vice
President,  Developing  Businesses  for  Community  Care  Network, Inc., a group
health  and  workers'  compensation  managed  care  company from January 1997 to
August  1997.

Mr.  Brendzel  has  been Senior Vice President, General Counsel, Secretary and a
director  of the Company since 1989. He joined the Company in 1978 and was Chief
Financial  Officer  from  April  1988  to  May 1996. Mr. Brendzel is licensed to
practice  law  in the state of California. Mr. Brendzel is the brother-in-law of
Dr.  Baileys.


                                       30
<PAGE>
Mr.  Gates  has  been  Senior  Vice  President and Chief Financial Officer since
November  1999,  when  he  joined  the  Company,  and has been a director of the
Company  since  March  2000.  From  June  1995  to  February  1999, he was Chief
Financial  Officer,  then  Treasurer,  of Sheridan Healthcare, Inc., a physician
practice  management  company.

Mr. Keating has been Vice President, Marketing and Chief Marketing Officer since
May  2001, and was Vice President, Sales and Marketing from February 2000 to May
2001.  He  was  Western Regional Vice President of the Company from October 1997
to  February 2000. He joined the Company in 1995 and was Vice President-Imprimis
and  Guards  Office  Operations  for the Company from October 1995 until October
1997.

Mr.  Lauffenburger  has  been Chief Information Officer since November 2002.  He
served  as  Director, Information Services from January 2001, when he joined the
Company,  to  November  2002.  From  November  1998  to  January 2001, he was IS
Manager,  Year  2000,  then  Senior  Project  Manager,  at  Scripps Health.  Mr.
Lauffenburger  was  Senior  Programmer,  then  Project  Manager,  then Director,
Electronic  Data Interchange of Community Care Network, Inc., from April 1991 to
November  1998.

Ms.  Lucci  has  been Vice President, Service Center Operations since June 2001,
and  was  Vice President, Corporate Services from February 2000 to May 2001. She
joined  the  Company  in  1994  and served as Director of Corporate Services and
Human  Resources  from  January  1996  to  February  2000.

Dr.  Sutherland  has  been  Dental  Director  since May 2000, when he joined the
Company,  and  has been Director of Quality Management since June 2002.  He also
served  as  Vice  President,  Provider Relations from July 2001 to May 2002. Dr.
Sutherland  served  as Vice President of Clinical Operations and Dental Director
of  Community Dental Services, Inc., a corporation operating dental practices in
California, from February 1997 to March 2000.  He owned and operated a number of
dental  practices  from  1980  to  1997.  Dr. Sutherland is licensed to practice
dentistry  in  the  state  of  California.

Dr. Baileys has been Chairman of the Board of Directors since September 1995. He
joined  the  Company in 1975 and served as President of the Company from 1981 to
March  1997,  and  Chief  Executive  Officer from May 1995 to February 2000. Dr.
Baileys  is  licensed  to  practice  dentistry  in  the state of California. Dr.
Baileys  currently  serves  on the board of directors of SunLink Health Systems,
Inc.

Mr.  Anderson  has  been  President  of Calver Fund, a healthcare investment and
consulting  firm,  since  1988. He currently serves on the board of directors of
three non-public health care companies, and has been a director of several other
private  health  care  companies.

Mr.  Blewitt is a Senior Managing Director in the Bond & Corporate Finance Group
of  John  Hancock  Life  Insurance Company and has been employed by John Hancock
since  1982.  Mr. Blewitt is also President of Hancock Mezzanine Advisors LLC, a
subsidiary  of  John  Hancock,  and  the  managing  member  of Hancock Mezzanine
Partners,  L.P.  and  Hancock  Mezzanine  Partners  II,  L.P., funds that invest
primarily  in  mezzanine debt securities. Mr. Blewitt is currently a director of
several  private  companies.

Mr.  Daniels was a founder of CAI Advisors & Co., an investment management firm,
in  1989 and has been a principal of that entity and its related investment fund
vehicles  since  then.  Mr.  Daniels  is  currently a director of Pharmakinetics
Laboratories,  Inc.  He was a past Chairman of Zenith Laboratories, Inc. and has
been  a  director  of  several  other  public  and  private  companies.


                                       31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

The following table shows the compensation paid to the Company's Chief Executive
Officer  as  of  December  31,  2002, and the other four most highly compensated
executive  officers  as  of December 31, 2002 who received total compensation in
excess of $100,000 during the year ended December 31, 2002 (the "Named Executive
Officers"). The compensation disclosed is for the three years ended December 31,
2002.

<TABLE>
<CAPTION>
                                                                                                          LONG-TERM
                                                                                                         COMPENSATION
                                                                                                            AWARDS
                                                             ANNUAL COMPENSATION                        -------------
                                                     -----------------------------------   OTHER COM-   STOCK OPTIONS
           NAME               PRINCIPAL POSITION          YEAR         SALARY    BONUS    PENSATION(1)     GRANTED
-------------------------  ------------------------  --------------  ---------  --------  ------------  -------------
<S>                        <C>                       <C>             <C>        <C>       <C>           <C>
James E. Buncher           President and Chief            2002       $ 250,000  $ 25,000  $      2,750             --
                             Executive Officer (2)        2001         246,000        --           928        100,000
                                                          2000         187,500        --            --        600,000

Stephen J. Baker           Executive Vice President       2002         220,000    20,000            --             --
                             and Chief Operating          2001         152,000        --            --        300,000
                             Officer (3)                  2000              --        --            --             --

Dennis L. Gates            Senior Vice President          2002         204,000    15,000         2,750         20,000
                             and Chief Financial          2001         197,000        --            --             --
                             Officer                      2000         203,750        --            --        375,000

Ronald I. Brendzel         Senior Vice President,         2002         191,000    15,000         2,738        207,500
                             General Counsel and          2001         193,000        --            --             --
                             Secretary                    2000         185,000        --            --        120,000

Kenneth E. Keating         Vice President,                2002         186,000        --         2,319          2,500
                             Marketing and Chief          2001         180,000        --           938             --
                             Marketing Officer (4)        2000         170,654        --            --        120,000
<FN>
-----------------

(1)  Other  compensation  consists  of  matching  contributions to the Company's
     401(k)  plan.
(2)  Mr.  Buncher joined the Company as President and Chief Executive Officer in
     March  2000.
(3)  Mr.  Baker  joined  the  Company  as  Executive  Vice  President  and Chief
     Operating  Officer  in  April  2001.
(4)  Mr. Keating became Vice President, Marketing and Chief Marketing Officer in
     May  2001. He was Vice President, Sales and Marketing from February 2000 to
     May  2001,  and was Western Regional Vice President prior to February 2000.
</TABLE>

During  2002,  the  Company  entered into a Severance Agreement with each of the
Named  Executive Officers, which continues until the officer's employment by the
Company  terminates for any reason. Pursuant to each of these agreements, either
the  Company  or  the  officer  can  terminate the officer's employment with the
Company  at  any  time.  In  the  event  the  Company  terminates  the officer's
employment,  or  implements  a  substantial  diminution  of  the  officer's
responsibilities, and as a result, the officer resigns, within one year and as a
result  of  a  "change in control" as defined below, the Company is obligated to
pay  the  officer an amount equal to the officer's annual salary then in effect,
plus an amount equal to the bonus earned by the officer during the last calendar
year.  A  "change  in  control"  is defined as the acquisition of the Company by
another  entity,  a  sale  of  substantially all of the assets of the Company, a
merger  of  the  Company  with  another entity, the acquisition by any person or
group  of  persons  of 50% or more of the combined voting power of the Company's
then  outstanding securities, or a change of 50% or more of the directors of the
Company  within  a  one-year  period.

During 2003, the Company implemented a Retention Bonus Plan with respect to each
of  the Named Executive Officers, which continues until the officer's employment
by  the  Company  terminates  for any reason. The purpose of the Retention Bonus
Plan  is  to  provide  an  incentive for the senior management of the Company to
remain  employed  during a reasonable transition period in the event of the sale
of  the Company to a third party. In the event that more than 50% of the Company
is sold to an entity that is not otherwise a current stockholder of the Company,
each  of  the  Named Executive Officers would receive a variable retention bonus


                                       32
<PAGE>
that is based on the amount of proceeds from the sale transaction. The retention
bonus amounts to be paid by the Company are the following amounts for each $1.00
per  share  of  common stock that is realized in a sale transaction: $325,000 to
Mr.  Buncher,  $250,000  to  Mr.  Baker,  $150,000 to Mr. Gates, $150,000 to Mr.
Brendzel,  and  $75,000  to  Mr.  Keating. Of the total amount of each officer's
retention  bonus,  25% would be paid at the closing of the transaction, provided
the  officer  is  still  employed at that time, and 75% would be paid in monthly
installments  over  the  nine  months  following the closing of the transaction,
provided the officer is still employed by the purchaser at the time each payment
is  due. Notwithstanding the previous sentence, the entire retention bonus would
be  paid  in  the event the purchaser reduces the officer's compensation rate or
terminates  the  officer's  employment.

STOCK OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 2002

Stock  options  granted  to  the  Named Executive Officers during the year ended
December  31,  2002  were  as  follows.

<TABLE>
<CAPTION>
                         INDIVIDUAL STOCK OPTION GRANTS
-------------------------------------------------------------------------------   POTENTIAL REALIZABLE VALUE
                              NUMBER OF   % OF TOTAL                                AT ASSUMED ANNUAL RATES
                               SHARES       OPTIONS                               OF STOCK PRICE APPRECIATION
                             UNDERLYING   GRANTED TO    EXERCISE                      FOR OPTION TERM(3)
                               OPTIONS     EMPLOYEES   PRICE PER    EXPIRATION   ----------------------------
           NAME                GRANTED      IN 2002     SHARE(1)     DATE(2)           5%            10%
---------------------------  -----------  -----------  ----------  ------------  -------------  -------------
<S>                          <C>          <C>          <C>         <C>           <C>            <C>
James E. Buncher                      --          --   $      --             --  $          --  $         --
Stephen J. Baker                      --          --          --             --             --            --
Dennis L. Gates                   20,000         4.9%       1.25       Feb 2012         15,722        39,844
Ronald I. Brendzel                 7,500         1.9%       1.25       Feb 2012          5,896        14,941
Ronald I. Brendzel               200,000        49.4%       1.23       Oct 2012        154,708       392,061
Kenneth E. Keating                 2,500         0.6%       1.25       Feb 2012          1,965         4,980
<FN>
----------------

(1)  The  exercise price per share of each of the options is equal to or greater
     than  the  market  price  of  the Company's common stock on the date of the
     grant.  Subject  to  the terms of each option agreement, the exercise price
     may  be  paid  in  cash  or  in  shares of common stock owned by the option
     holder,  or  by  a  combination  of  the  foregoing.
(2)  Each of the options becomes exercisable in three equal annual installments.
     The  dates  on which the options can be exercised may be accelerated in the
     event  of  a  commencement of a tender offer for shares of the Company, the
     signing of an agreement for certain mergers or consolidations involving the
     Company, the sale of all or substantially all of the assets of the Company,
     a change of control, or certain other extraordinary corporate transactions.
     The  options  are  subject  to  early  termination  in the event the option
     holder's  employment  is  terminated.
(3)  There  is  no assurance that the actual stock appreciation over the term of
     the  options  will be at the assumed five percent (5%) or ten percent (10%)
     levels or at any other assumed level. Unless the market price of the common
     stock  does  in  fact  appreciate over the option term, the Named Executive
     Officers  will  realize  no  value  from  the  option  grants.
</TABLE>


                                       33
<PAGE>
STOCK OPTION EXERCISES AND YEAR-END STOCK OPTION VALUES

There  were  no  stock  options exercised by any of the Named Executive Officers
during  the  year  ended  December  31,  2002.  Stock  options held by the Named
Executive  Officers at December 31, 2002 are shown in the following table. There
were  no  stock  appreciation  rights  outstanding  as  of  December  31,  2002.

<TABLE>
<CAPTION>
                        STOCK OPTIONS
                          EXERCISED
                    ---------------------     NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                             UNDERLYING UNEXERCISED       IN-THE-MONEY  OPTIONS
                      SHARES               OPTIONS AT FISCAL YEAR-END       AT FISCAL YEAR-END
                     ACQUIRED     VALUE    --------------------------  ----------------------------
       NAME         ON EXERCISE  REALIZED  EXERCISABLE  UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
------------------  -----------  --------  -----------  -------------  -------------  -------------
<S>                 <C>          <C>       <C>          <C>            <C>            <C>

James E. Buncher             --  $     --      500,000        200,000  $      93,333  $      26,667
Stephen J. Baker             --        --      100,000        200,000             --             --
Dennis L. Gates              --        --      316,667         78,333         63,333         11,667
Ronald I. Brendzel           --        --       80,000        247,500         16,000          8,000
Kenneth E. Keating           --        --       80,000         42,500         16,000          8,000
</TABLE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
         AND RELATED STOCKHOLDER MATTERS
         -------------------------------

The  following  table  shows  the  number of shares of common stock beneficially
owned as of March 15, 2003, by each director, each Named Executive Officer, each
entity  that,  to  the Company's knowledge, beneficially owned 5% or more of the
total  outstanding  common  stock  of  the  Company, and all directors and Named
Executive  Officers as a group. The number of shares beneficially owned includes
the  number of shares of common stock into which the convertible preferred stock
held by each person is convertible. To the Company's knowledge, the named person
has  sole voting and investment power with respect to all shares of common stock
listed,  except  where indicated otherwise. The total number of shares of common
stock  outstanding  as  of  March 15, 2003 was 5,697,962 and the total number of
shares  of  preferred stock outstanding as of that date was 30,000,000, which is
convertible into 30,000,000 shares of common stock. The following table includes
the  common  share  equivalents  of the convertible preferred stock, because the
Company  believes  the  convertible preferred stock is essentially equivalent to
common  stock,  based  on all the rights and preferences of both types of stock.

<TABLE>
<CAPTION>
                                                                       NUMBER OF SHARES       % OF
                                                                         BENEFICIALLY      TOTAL SHARES
                        OFFICER OR DIRECTOR                                OWNED(1)       OUTSTANDING(2)
-------------------------------------------------------------------  -------------------  --------------
<S>                                                                  <C>                  <C>
  John Hancock Life Insurance Company (3)                                     15,000,000            42.0
  CAI Capital Partners & Company II, Limited Partnership (4)                   8,514,579            23.9
  Leslie B. Daniels (5)                                                           84,500               *
  Jack R. Anderson (6)                                                         3,210,615             9.0
  Steven J. Baileys (7)                                                        2,844,600             7.9
  The Burton Partnership (8)                                                   2,328,685             6.5
  James E. Buncher (9)                                                           892,333             2.5
  Dennis L. Gates (10)                                                           481,667             1.3
  Ronald I. Brendzel (11)                                                        353,173             1.0
  Stephen J. Baker (12)                                                          204,534               *
  Kenneth E. Keating (13)                                                        126,833               *
  Stephen J. Blewitt (3)                                                              --               *

  All directors and Named Executive Officers as a group (9 persons)           31,628,334            84.9

  All principal stockholders in total                                         33,957,019            91.1
<FN>
  *  Indicates  less  than  one  percent  (1%)
</TABLE>

                  See note explanations on the following page.


                                       34
<PAGE>
(1)  Includes  the  number  of shares of common stock into which the convertible
     preferred  stock  held  by each person is convertible. Also includes shares
     issuable  pursuant  to stock options that are exercisable within 60 days of
     March  15,  2003. Some of the stockholders included in this table reside in
     states  having  community  property  laws  under  which  the  spouse  of  a
     stockholder  in  whose  name  securities  are registered may be entitled to
     share  in the management of their community property, which may include the
     right  to  vote  or  dispose  of  such  shares.

(2)  For  purposes  of  computing  all  the  percentages shown, the total shares
     outstanding  includes the shares of common stock into which all outstanding
     shares  of  convertible  preferred  stock  are convertible. For purposes of
     computing  the percentage for each individual, the total shares outstanding
     includes  the shares issuable to that person pursuant to stock options that
     are exercisable within 60 days of March 15, 2003. For purposes of computing
     the  percentages  for  all  directors  and officers as a group, and for all
     principal  stockholders  as  a group, the total shares outstanding includes
     all  the shares issuable pursuant to stock options that are included in the
     above  table.

(3)  Mr.  Blewitt  is employed by John Hancock Life Insurance Company, which has
     beneficial  ownership  of  15,000,000  shares  issuable  upon conversion of
     shares  of  convertible  preferred stock, as to which Mr. Blewitt disclaims
     beneficial  ownership.  The  address  of  Mr. Blewitt and John Hancock Life
     Insurance  Company  is  John  Hancock  Place,  P.O.  Box  111,  Boston,
     Massachusetts  02117.

(4)  Includes  84,500  shares  of  common  stock  owned directly by Mr. Daniels,
     2,780,786  shares  issuable  upon  conversion  of  shares  of  convertible
     preferred  stock  owned  by CAI Partners & Company II, Limited Partnership,
     and  5,649,293  shares  issuable  upon  conversion of shares of convertible
     preferred  stock  owned  by  CAI  Capital  Partners  &  Company II, Limited
     Partnership  (collectively  "CAI").  Mr.  Daniels  is  a  principal of both
     entities.  The  address  of CAI and Mr. Daniels is 540 Madison Avenue, 22nd
     Floor,  New  York,  New  York  10022.

(5)  Represents  84,500  shares  of  common stock owned directly by Mr. Daniels.
     Does  not  include  2,780,786  shares issuable upon conversion of shares of
     convertible  preferred  stock  owned  by CAI Partners & Company II, Limited
     Partnership,  and  5,649,293  shares  issuable upon conversion of shares of
     convertible  preferred  stock  owned  by CAI Capital Partners & Company II,
     Limited  Partnership  (collectively  "CAI").  Mr. Daniels is a principal of
     both  entities.  The  address  of  Mr.  Daniels is 540 Madison Avenue, 22nd
     Floor,  New  York,  New  York  10022.

(6)  Includes 1,802,885 shares issuable upon conversion of shares of convertible
     preferred  stock  and  226,000 shares of common stock held by Mr. Anderson.
     Also  includes  1,081,730  shares  issuable  upon  conversion  of shares of
     convertible preferred stock and 100,000 shares of common stock owned by Mr.
     Anderson's  spouse as separate property, as to which Mr. Anderson disclaims
     beneficial  ownership. The address of Mr. Anderson is 16475 Dallas Parkway,
     Suite  735,  Addison,  Texas  77001.

(7)  Includes  645,000  shares  of  common  stock  held by Dr. Baileys directly,
     912,500  shares issuable upon conversion of shares of convertible preferred
     stock  held  by  the  Baileys  Family  Trust  and affiliated trusts for the
     benefit of various relatives of Dr. Baileys, 700,767 shares of common stock
     owned  by  the Baileys Family Trust, 303,000 shares of common stock held in
     various trusts for relatives of Dr. Baileys, as to all of which Dr. Baileys
     is trustee and for which Dr. Baileys has sole power to vote the securities,
     150,000  shares  of  common  stock  held by the Alvin and Geraldine Baileys
     Foundation,  for which Dr. Baileys is an officer and director and for which
     Dr.  Baileys  has  shared  power  to  vote  the  securities, and options to
     purchase  133,333  shares of common stock. Dr. Baileys disclaims beneficial
     ownership  of  any of the shares in the trusts or the foundation referenced
     above. The address of Dr. Baileys is 95 Enterprise, Suite 100, Aliso Viejo,
     California  92656.

(8)  Includes  162,700  shares  of common stock and 419,470 shares issuable upon
     conversion  of  shares  of  convertible preferred stock owned by the Burton
     Partnership,  Limited  Partnership  ("BPLP"),  and 488,100 shares of common
     stock  and  1,258,415  shares  issuable  upon  conversion  of  shares  of
     convertible  preferred  stock owned by the Burton Partnership (QP), Limited
     Partnership  ("QP").  Mr. Donald W. Burton is a principal of both entities.
     The  address  of BPLP, QP and Mr. Burton is P.O. Box 4643, Jackson, Wyoming
     83001.


                                       35
<PAGE>
(9)  Includes  59,000  shares  of  common  stock,  200,000  shares issuable upon
     conversion  of  shares  of  convertible  preferred  stock,  and  options to
     purchase  633,333  shares  of  common  stock.

(10) Includes  100,000  shares issuable upon conversion of shares of convertible
     preferred  stock,  and  options to purchase 381,667 shares of common stock.

(11) Includes  130,673  shares  of  common  stock,  100,000 shares issuable upon
     conversion  of  shares  of  convertible  preferred  stock,  and  options to
     purchase  122,500  shares  of  common  stock.

(12) Includes  21,200  shares  of  common  stock and options to purchase 183,334
     shares  of  common  stock.

(13) Includes  6,000  shares  of  common  stock  and options to purchase 120,833
     shares  of  common  stock.

The  following  is  a  summary  of the Company's equity compensation plans as of
December  31,  2002:

<TABLE>
<CAPTION>
                                                        SHARES OF       WEIGHTED        NUMBER
                                                       STOCK TO BE      AVERAGE       OF SHARES
                                                       ISSUED UPON      EXERCISE      AVAILABLE
                                                       EXERCISE OF      PRICE OF     FOR ISSUANCE
                                                       OUTSTANDING    OUTSTANDING    UNDER STOCK
                                                      STOCK OPTIONS  STOCK OPTIONS   OPTION PLAN
                                                      -------------  --------------  ------------
<S>                                                   <C>            <C>             <C>
Equity compensation plans approved by stockholders        2,725,834  $         1.15       874,166
Equity compensation plans not approved by
  stockholders                                                   --              --            --
                                                      -------------  --------------  ------------

Total                                                     2,725,834  $         1.15       874,166
                                                      =============  ==============  ============
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

The  Company  paid  $153,000,  $200,000  and  $117,000 of consulting fees to the
chairman  of  its  board  of directors during the years ended December 31, 2002,
2001  and  2000, respectively.  This consulting arrangement terminated effective
January  31,  2003.  In  addition,  please  see  the discussion of the Company's
recapitalization  transaction  under  "Recapitalization  Transaction" in Part I,
Item  1  of  this  Form  10-K.

ITEM 14. CONTROLS AND PROCEDURES
--------------------------------

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Within  90  days  prior  to  the  date  of this report, the Company completed an
evaluation,  under  the  supervision and with the participation of the Company's
management,  including  the  Chief  Executive  Officer  and  the Chief Financial
Officer,  of  the  effectiveness  of  the  design and operation of the Company's
disclosure  controls and procedures pursuant to Exchange Act Rule 13a-14.  Based
on  that  evaluation,  the  Chief  Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
alerting them, on a timely basis, to material information related to the Company
required  to  be  included in the Company's periodic filings with the Securities
and  Exchange  Commission.

CHANGES IN INTERNAL CONTROLS

No  significant  changes to the Company's internal controls were made during the
periods  covered  by  this  report.


                                       36
<PAGE>
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------

(a)  FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND EXHIBITS

The  consolidated  financial  statements  and  financial  statement  schedule of
SafeGuard  Health  Enterprises, Inc. filed as part of this 2002 Annual Report on
Form  10-K  are listed in the accompanying Index to Financial Statements on Page
F-1.  An  "Exhibit  Index"  is  included in this 2002 Annual Report on Form 10-K
beginning  on  Page  E-1. All Exhibits are either attached hereto or are on file
with  the  Securities  and  Exchange  Commission.

(b)  REPORTS ON FORM 8-K

The  Company  filed a Current Report on Form 8-K on February 14, 2002, to report
the  execution of a definitive agreement to acquire all of the outstanding stock
of  Ameritas  Managed  Dental  Plan,  Inc.,  a  California managed dental health
maintenance  organization, for a purchase price of $1.1 million in cash, subject
to  regulatory  approval. See Note 19 to the accompanying consolidated financial
statements  for more information on this transaction, which is currently pending
regulatory  approval.


                                       37
<PAGE>
                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized.

                       SAFEGUARD HEALTH ENTERPRISES, INC.

     By:  /s/ James E. Buncher                           Date:  March 21, 2003
        --------------------------------------------     ----------------------
     James E. Buncher
     President, Chief Executive Officer and Director
     (Principal Executive Officer)

     By:  /s/ Dennis L. Gates                            Date:  March 21, 2003
        --------------------------------------------     ----------------------
     Dennis L. Gates
     Senior Vice President, Chief Financial Officer and Director
     (Principal Accounting Officer)

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
following  persons have signed this report below on behalf of the registrant and
in  the  capacities  and  on  the  dates  indicated.

     By:  /s/ James E. Buncher                           Date:  March 21, 2003
        --------------------------------------------     ----------------------
     James E. Buncher
     President, Chief Executive Officer and Director

     By:  /s/ Steven J. Baileys                          Date:  March 21, 2003
        --------------------------------------------     ----------------------
     Steven J. Baileys, DDS
     Chairman of the Board of Directors

     By:  /s/ Ronald I. Brendzel                         Date:  March 21, 2003
        --------------------------------------------     ----------------------
     Ronald I. Brendzel, JD
     Senior Vice President, General Counsel, Secretary and Director

     By:  /s/ Dennis L. Gates                            Date:  March 21, 2003
        --------------------------------------------     ----------------------
     Dennis L. Gates
     Senior Vice President, Chief Financial Officer and Director

     By:  /s/ Neil R. Anderson                           Date:  March 21, 2003
        --------------------------------------------     ----------------------
     Neil R. Anderson
     Director

     By:  /s/ Stephen J. Blewitt                         Date:  March 21, 2003
        --------------------------------------------     ----------------------
     Stephen J. Blewitt
     Director

     By:  /s/ Leslie B. Daniels                          Date:  March  21,  2003
        --------------------------------------------     ----------------------
     Leslie B. Daniels
     Director


                                       38
<PAGE>
                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002;
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2002


Each  of  the  undersigned  hereby  certifies  in  his capacity as an officer of
SafeGuard  Health  Enterprises,  Inc. (the "Company"), that the Annual Report of
the  Company  on Form 10-K for the period ended December 31, 2002 (the "Report")
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that the information contained in the Report fairly presents, in
all material respects, the financial condition of the Company at the end of such
period  and  the  results  of  operations  of  the  Company  for  such  period.

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934, this certification has been signed by the undersigned in the City
of  Aliso  Viejo,  State  of  California,  on  the  21st  day  of  March  2003.


          SAFEGUARD HEALTH ENTERPRISES, INC.


          By:  /s/ James E. Buncher
             ----------------------
            James E. Buncher
            President and Chief Executive Officer
            (Principal Executive Officer)

          By:  /s/ Dennis L. Gates
             ----------------------
            Dennis L. Gates
            Senior Vice President and Chief Financial Officer
            (Chief Accounting Officer)



                                       39
<PAGE>
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
           PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002;
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2002

I,  James  E.  Buncher,  President  and  Chief  Executive Officer, certify that:

1.  I  have  reviewed  this  annual  report  on  Form  10-K  of SafeGuard Health
Enterprises,  Inc.,  (the  "Report").

2.  Based  on my knowledge, this Report does not contain any untrue statement of
a  material  fact  or  omit  to  state  a  material  fact  necessary to make the
statements  made, in light of the circumstances under which such statements were
made,  not  misleading  with  respect  to  the  period  covered  by this Report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information included in this Report, fairly present in all material respects the
financial  condition,  results of operations and cash flows of the registrant as
of,  and  for,  the  periods  presented  in  this  Report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  have:

     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this Report is being
          prepared;
     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  Report  (the  "Evaluation  Date");  and
     c)   presented  in  this  Report our conclusions about the effectiveness of
          the  disclosure  controls and procedures based on our evaluation as of
          the  Evaluation  Date;

5.  The  registrant's  other  certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of  registrant's  board  of  directors  (or  persons  performing  the equivalent
functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and
     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
Report  whether  there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of  our  most recent evaluation, including any corrective actions with regard to
significant  deficiencies  and  material  weaknesses.

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934, this certification has been signed by the undersigned in the City
of  Aliso  Viejo,  State  of  California,  on  the  21st  day  of  March  2003.

          SAFEGUARD HEALTH ENTERPRISES, INC.


          By:  /s/ James E. Buncher
             -----------------------
           James E. Buncher
           President and Chief Executive Officer
           (Principal Executive Officer)


                                       40
<PAGE>
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
           PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002;
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2002

I,  Dennis  L  Gates, Senior Vice President and Chief Financial Officer, certify
that:

1.  I  have  reviewed  this  annual  report  on  Form  10-K  of SafeGuard Health
Enterprises,  Inc.,  (the  "Report").

2.  Based  on my knowledge, this Report does not contain any untrue statement of
a  material  fact  or  omit  to  state  a  material  fact  necessary to make the
statements  made, in light of the circumstances under which such statements were
made,  not  misleading  with  respect  to  the  period  covered  by this Report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information included in this Report, fairly present in all material respects the
financial  condition,  results of operations and cash flows of the registrant as
of,  and  for,  the  periods  presented  in  this  Report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  have:

     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this Report is being
          prepared;
     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  Report  (the  "Evaluation  Date");  and
     c)   presented  in  this  Report our conclusions about the effectiveness of
          the  disclosure  controls and procedures based on our evaluation as of
          the  Evaluation  Date;

5.  The registrant's other certifying officer and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's  board  of  directors  (or  persons  performing  the  equivalent
functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and
     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and

6.  The  registrant's  other  certifying  officer  and  I have indicated in this
Report  whether  there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of  our  most recent evaluation, including any corrective actions with regard to
significant  deficiencies  and  material  weaknesses.

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934, this certification has been signed by the undersigned in the City
of  Aliso  Viejo,  State  of  California,  on  the  21st  day  of  March  2003.

          SAFEGUARD HEALTH ENTERPRISES, INC.


          By:  /s/ Dennis L. Gates
             ---------------------
           Dennis L. Gates
           Senior Vice President and Chief Financial Officer
           (Chief Accounting Officer)


                                       41
<PAGE>
                                  EXHIBIT INDEX

   EXHIBIT
   NUMBER                              DESCRIPTION
-------------  -----------------------------------------------------------------

     2.1       Plans  of  Acquisition  (5)
     3.1       Articles  of  Incorporation  (3)
     3.1.1     Amended  and  Restated  Certificate  of  Incorporation  (11)
     3.1.2     Amended  and  Restated  Certificate  of  Incorporation  (15)
     3.1.3     Amended  and  Restated  Certificate  of  Incorporation  (17)
     3.1.4     Certificate  of  Designation  of  Preferred  Stock  (11)
     3.2       Amended  and  Restated  Bylaws
     10.1      1984  Stock  Option  Plan  (2)
     10.2      Stock  Option  Plan  Amendment  (1)
     10.3      Stock  Option  Plan  Amendment  (3)
     10.4      Stock  Option  Plan  Amendment  (4)
     10.5      2000  Stock  Option  Plan  Amendment  (12)
     10.5.1    Amended  and  Restated  Stock  Option  Plan  (17)
     10.6      Form  of  Employment Agreement  between the Company and the Named
                 Executive Officers (12)
     10.7      Form of Rights Agreement, dated as of March 22, 1996, between the
                 Company and American Stock Transfer and Trust Company, as
                 Rights Agent (5)
     10.8      Default Forbearance Agreement and Irrevocable Power of Attorney
                 (6)
     10.9      First Waiver and Amendment to  Note  Purchase  Agreement  (7)
     10.10     Amended  and  Restated  Loan  and  Security  Agreement  (7)
     10.11     Debenture  and  Note  Purchase  Agreement  (8)
     10.12     Stockholder  Agreement  (8)
     10.13     First  Amendment  to  Debenture  and  Note Purchase Agreement (9)
     10.14     Second  Amendment  to  Debenture  and Note Purchase Agreement (9)
     10.15     Term  Sheet  Agreement  dated  as  of  March  1,  2000  (10)
     10.16     Loan  Document  and  Purchase  Agreement  (11)
     10.17     Agreement  among  Stockholders  and  the  Company  (11)
     10.18     Registration  Rights  Agreement  between certain Stockholders and
                 the  Company  (11)
     10.19     Consulting Agreement between the Company and Steven J. Baileys
                 (12)
     10.20     Asset  Purchase Agreement between the Company and  Total  Dental
                 Administrators  Health  Plan,  Inc.(13)
     10.21     Administrative  Services  Agreement between the Company and Total
                 Dental  Administrators  Health Plan,  Inc.  (13)
     10.22     Stock  Purchase  Agreement  between  the Company and Total Dental
                 Administrators,  Inc.  (13)
     10.23     Promissory  Note  and  Security  Interest  given  by Total Dental
                 Administrators,  Inc.  to  the  Company  (13)
     10.24     Administrative  Services  Agreement between the Company and Total
                 Dental  Administrators,  Inc.  (13)
     10.25     Stock Purchase Agreement between the Company and Dental Source of
                 Missouri  and  Kansas,  Inc.  (13)
     10.26     First  Amendment  to Stock Purchase Agreement between the Company
                 and  Dental  Source  of  Missouri and  Kansas,  Inc.  (13)
     10.27     Administrative  Services Agreement between the Company and Dental
                 Source  of  Missouri  and  Kansas, Inc.(13)
     10.28     Amended  and  Restated  401(k)  Plan  (13)
     10.29     First  Amendment  to  Amended  and  Restated  401(k)  Plan  (13)
     10.30     Stock  Purchase  Agreement  dated  as  of  April  24, 2002 by and
                 between  the  Company  and  Nicholas  M. Kavouklis  (14)
     10.31     First  Amendment to Stock Purchase Agreement dated as of June 17,
                 2002  between  the  Company  and Nicholas  M.  Kavouklis  (16)
     10.32     Secured  Convertible  Promissory Note dated as of August 30, 2002
                 issued by the Company to Nicholas M. Kavouklis in connection
                 with Exhibit 10.31 above (16)
     10.33     Registration Rights Agreement dated as of August 30, 2002 between
                 the Company and Nicholas M. Kavouklis in connection with
                 Exhibit 10.31 above (16)
     10.34     Employment  Agreement  dated  as  of  August 30, 2002 between the
                 Company  and  Nicholas  M. Kavouklis  (16)


                                      E-1
<PAGE>
     10.35     Lease  Agreement  dated as of August 30, 2002 between the Company
                 and  an  affiliate  of  Nicholas  M. Kavouklis  (16)
     10.36     Pledge  Agreement dated as of August 30, 2002 between the Company
                 and Nicholas M. Kavouklis in connection with Exhibit 10.31
                 above (16)
     10.37     Guarantee  Agreement  dated  as  of  August  30, 2002 between the
                 Company and an affiliate of Nicholas M. Kavouklis in connection
                 with Exhibit 10.35 above (16)
     10.38     Stipulation  and  Settlement  dated  as  of September 17, 2002 of
                 stockholder class action lawsuit filed against the Company in
                 1999 (17)
     10.39     Order Preliminarily Approving Settlement, providing for notice to
                 the class, and scheduling final approval of settlement dated as
                 of September 19, 2002 (17)
     10.40     Convertible  Promissory Note dated as of August 8, 2002 issued by
                 the Company to Jack R. Anderson (18)
     10.41     Registration  Rights Agreement dated as of August 8, 2002 between
                 the Company and Jack R. Anderson (18)
     21.1      Subsidiaries  of  the  Company
     23.1      Independent  Auditors'  Consent
_______________________________

(1)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the Company's Registration Statement on Form S- 1 filed as of September 12,
     1983  (File  No.  2-86472).
(2)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Registration Statement on Form S-1 filed as of July 3, 1984
     (File  No.  2-92013).
(3)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1989.
(4)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1992.
(5)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  September  27,  1996.
(6)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     1998.
(7)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  June  4,  1999.
(8)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  June  30,  1999.
(9)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  October  5,  1999.
(10) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  March  16,  2000.
(11) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  March  6,  2001.
(12) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2000.
(13) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2001.
(14) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  April  24,  2002.
(15) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Registration  Statement  on Form S-8 filed as of August 30,
     2002.
(16) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  August  30,  2002.
(17) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  September  19,2002.

(18) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the Company's Quarterly Report on Form 10-Q for the quarter ended September
     30,  2002.


                                      E-2
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 2002


                                                                           PAGE
                                                                          ------

Independent  Auditors'  Report . . . . . . . . . . . . . . . . . . . . .   F-2

Financial  Statements:

     Consolidated  Balance  Sheets . . . . . . . . . . . . . . . . . . .   F-3

     Consolidated  Statements  of  Operations. . . . . . . . . . . . . .   F-4

     Consolidated Statements of Stockholders' Equity (Deficit) . . . . .   F-5

     Consolidated  Statements  of  Cash  Flows . . . . . . . . . . . . .   F-6

     Notes  to  Consolidated  Financial  Statements. . . . . . . .   F-8 to F-31

Financial  Statement  Schedule:

     Schedule  II  -  Valuation  and  Qualifying  Accounts . . . . . . .   F-32


                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To  the  Board  of  Directors  and Stockholders of SafeGuard Health Enterprises,
Inc.:

We have audited the accompanying consolidated balance sheets of SafeGuard Health
Enterprises,  Inc.  and subsidiaries (the "Company") as of December 31, 2002 and
2001,  and  the  related  consolidated  statements  of operations, stockholders'
equity  (deficit) and other comprehensive income (loss), and cash flows for each
of  the  three  years  in  the  period  ended December 31, 2002. Our audits also
included  the  consolidated  financial  statement  schedule  for the years ended
December 31, 2002, 2001, and 2000, included in the Index at Item 15(a)(2). These
consolidated  financial statements and consolidated financial statement schedule
are  the  responsibility  of  the Company's management. Our responsibility is to
express  an  opinion  on  the consolidated financial statements and consolidated
financial  statement  schedule  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements  are free of material misstatement. An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our  opinion,  such consolidated financial statements present fairly, in all
material  respects,  the  consolidated  financial  position  of SafeGuard Health
Enterprises,  Inc.  and  subsidiaries  as of December 31, 2002 and 2001, and the
results  of their operations and their cash flows for each of the three years in
the  period  ended  December  31, 2002, in conformity with accounting principles
generally  accepted  in the United States of America. Also, in our opinion, such
consolidated  financial  statement  schedule, when considered in relation to the
basic  consolidated  financial  statements taken as a whole, presents fairly, in
all  material  respects,  the  information  set  forth  therein.

As  discussed  in  Note  1 to the consolidated financial statements, the Company
changed  its  method of accounting for goodwill and other intangible assets as a
result of adopting Statement of Financial Accounting Standards No. 142, Goodwill
and  Other  Intangible  Assets,  effective  January  1,  2002.

DELOITTE & TOUCHE LLP

Costa Mesa, California
March 13, 2003


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                           SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                      CONSOLIDATED BALANCE SHEETS
                                   AS OF DECEMBER 31, 2002 AND 2001
                           (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


                                                                                   2002       2001
                                                                                 ---------  ---------
<S>                                                                              <C>        <C>

                                                  ASSETS

Current assets:
  Cash and cash equivalents                                                      $  3,036   $  1,497
  Investments available-for-sale, at fair value                                     9,668     13,956
  Accounts receivable, net of allowances of $325 in 2002 and $508 in 2001           2,554      2,839
  Other current assets                                                                853        903
                                                                                 ---------  ---------
    Total current assets                                                           16,111     19,195

Property and equipment, net of accumulated depreciation and amortization            3,532      2,348
Restricted investments available-for-sale, at fair value                            3,254      2,831
Notes receivable, net of allowances of $801 in 2002 and $467 in 2001                  457        805
Goodwill                                                                            8,590      3,920
Intangible assets, net of accumulated amortization of $257 in 2002                  2,013         --
Other assets                                                                          157        226
                                                                                 ---------  ---------
    Total assets                                                                 $ 34,114   $ 29,325
                                                                                 =========  =========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                               $  1,661   $  3,168
  Accrued expenses                                                                  3,526      4,827
  Current portion of long-term debt and capital lease obligations                   2,430        265
  Claims payable and claims incurred but not reported                               4,690      5,905
  Deferred premium revenue                                                          1,786        823
                                                                                 ---------  ---------
    Total current liabilities                                                      14,093     14,988

Long-term debt and capital lease obligations                                        2,997         --
Other long-term liabilities                                                         1,013        971
Commitments and contingencies (Note 14)

Stockholders' equity:
  Convertible preferred stock and additional paid-in capital - $0.01 par value;
    31,000,000 shares authorized; 30,000,000 shares issued and outstanding in 2002
    and 2001; liquidation preference of $30 million                                41,250     41,250
  Common stock and additional paid-in capital - $0.01 par value;
    42,500,000 shares authorized; 8,900,000 shares and 8,065,000 shares
    issued in 2002 and 2001, respectively; 5,683,000 shares and 4,798,000 shares
    outstanding in 2002 and 2001, respectively                                     22,662     21,552
  Retained earnings (accumulated deficit)                                         (30,170)   (31,447)
  Accumulated other comprehensive income                                               95         63
  Treasury stock, at cost                                                         (17,826)   (18,052)
                                                                                 ---------  ---------
    Total stockholders' equity                                                     16,011     13,366
                                                                                 ---------  ---------
    Total liabilities and stockholders' equity                                   $ 34,114   $ 29,325
                                                                                 =========  =========

          See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                 SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
                         (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                                2002      2001      2000
                                                              --------  --------  --------
<S>                                                           <C>       <C>       <C>
Premium revenue, net                                          $83,043   $84,822   $97,251

Health care services expense                                   57,937    58,692    68,568
Selling, general and administrative expense                    24,540    25,391    31,203
Loss on impairment of assets                                      334        --       450
                                                              --------  --------  --------

Operating income (loss)                                           232       739    (2,970)

Investment and other income                                       607     1,060     1,431
Interest expense on debt that was converted
  to equity in 2001                                                --      (402)   (4,801)
Other interest expense                                           (232)     (102)     (112)
                                                              --------  --------  --------
Income (loss) before income taxes,
  discontinued operations and extraordinary item                  607     1,295    (6,452)
Income tax expense (benefit)                                     (820)       --        --
                                                              --------  --------  --------
Income (loss) before discontinued operations
  and extraordinary item                                        1,427     1,295    (6,452)
Discontinued operations:
  Loss from assets transferred under contractual arrangements      --        --    (2,500)
Extraordinary item:
  Gain on conversion of debt to convertible preferred stock        --    11,251        --
                                                              --------  --------  --------

    Net income (loss)                                         $ 1,427   $12,546   $(8,952)
                                                              ========  ========  ========

Basic net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                         $  0.04   $  0.04   $ (1.36)
  Loss from discontinued operations                                --        --     (0.53)
  Extraordinary item                                               --      0.35        --
                                                              --------  --------  --------

    Net income (loss)                                         $  0.04   $  0.39   $ (1.89)
                                                              ========  ========  ========

Weighted average basic shares outstanding                      35,130    32,253     4,747

Diluted net income (loss) per share:
  Income (loss) before discontinued
    operations and extraordinary item                         $  0.04   $  0.04   $ (1.36)
  Loss from discontinued operations                                --        --     (0.53)
  Extraordinary item                                               --      0.34        --
                                                              --------  --------  --------

    Net income (loss)                                         $  0.04   $  0.38   $ (1.89)
                                                              ========  ========  ========

Weighted average diluted shares outstanding                    35,638    33,009     4,747

          See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                        SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
                                                 OTHER COMPREHENSIVE INCOME (LOSS)
                                           YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
                                                          (IN THOUSANDS)


                                                                                                                       ACCUMULATED
                                                  NUMBER OF SHARES               PREFERRED    COMMON       RETAINED       OTHER
                                     ------------------------------------------- STOCK AND   STOCK AND     EARNINGS      COMPRE-
                                                                COMMON           ADDITIONAL  ADDITIONAL    (ACCUMU-      HENSIVE
                                                        ------------------------   PAID-IN    PAID-IN       LATED         INCOME
                                         PREFERRED        ISSUED      TREASURY     CAPITAL    CAPITAL      DEFICIT)       (LOSS)
                                     -----------------  -----------  -----------  ---------  ---------  ---------------  ---------
<S>                                  <C>                <C>          <C>          <C>        <C>        <C>              <C>
Balance, January 1, 2000                           --        8,022       (3,275)  $      --  $  21,829  $      (35,302)  $    (18)

Net loss                                           --           --           --          --        --           (8,952)        --
Other comprehensive income (loss):
  Net unrealized gains on
    investments available-for-sale                                                                                            137
                                                                                                                         ---------
Total comprehensive income (loss)
                                     -----------------  -----------  -----------  ---------  ---------  ---------------  ---------

Balance, December 31, 2000                         --        8,022       (3,275)               21,829          (44,254)       119

Net income                                         --           --           --          --        --           12,546         --
Other comprehensive income:
  Net unrealized losses on
    investments available-for-sale                                                                                            (56)
Total comprehensive income
Issuance of preferred stock                    30,000           --           --      41,250        --               --         --
Cancellation of stock warrants (1)                 --           --           --          --      (320)             320         --
Repurchase of common stock                         --           --          (10)         --        --               --         --
Reissuance of treasury stock in
  contribution to retirement plan                  --           --           18          --        --              (59)        --
Exercise of stock options                          --           43           --          --        43               --         --
                                     -----------------  -----------  -----------  ---------  ---------  ---------------  ---------

Balance, December 31, 2001                     30,000        8,065       (3,267)     41,250    21,552          (31,447)        63

Net income                                         --           --           --          --        --            1,427         --
Other comprehensive income:
  Net unrealized gains on
    investments available-for-sale                                                                                             32
Total comprehensive income
Issuance of common stock                           --          786           --          --     1,061               --         --
Reissuance of treasury stock in
  contribution to retirement plan                  --           --           50          --        --             (150)        --
Exercise of stock options                          --           49           --          --        49               --         --
                                     -----------------  -----------  -----------  ---------  ---------  ---------------  ---------

Balance, December 31, 2002                     30,000        8,900       (3,217)  $  41,250  $ 22,662   $      (30,170)  $     95
                                     =================  ===========  ===========  =========  =========  ===============  =========


                                     TREASURY
                                       STOCK      TOTAL
                                     ---------  ---------
<S>                                  <C>        <C>
Balance, January 1, 2000             $(18,123)  $(31,614)

Net loss                                   --     (8,952)
Other comprehensive income (loss):
  Net unrealized gains on
    investments available-for-sale                   137
                                                ---------
Total comprehensive income (loss)                 (8,815)
                                     ---------  ---------

Balance, December 31, 2000            (18,123)   (40,429)

Net income                                 --     12,546
Other comprehensive income:
  Net unrealized losses on
    investments available-for-sale                   (56)
                                                ---------
Total comprehensive income                        12,490
Issuance of preferred stock                --     41,250
Cancellation of stock warrants (1)         --         --
Repurchase of common stock                (10)       (10)
Reissuance of treasury stock in
  contribution to retirement plan          81         22
Exercise of stock options                  --         43
                                     ---------  ---------

Balance, December 31, 2001            (18,052)    13,366

Net income                                 --      1,427
Other comprehensive income:
  Net unrealized gains on
    investments available-for-sale                    32
                                                ---------
Total comprehensive income                         1,459
Issuance of common stock                   --      1,061
Reissuance of treasury stock in
  contribution to retirement plan         226         76
Exercise of stock options                  --         49
                                     ---------  ---------

Balance, December 31, 2002           $(17,826)  $ 16,011
                                     =========  =========

<FN>
(1)  These  warrants  were  canceled  without  being exercised as of January 31,
     2001,  in  connection  with  the  conversion of the Senior Notes Payable to
     convertible  preferred  stock,  as  discussed  in  Note  11.

          See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                        SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                           YEARS ENDED DECEMBER 31, 2002, 2002, AND 2000
                                          (IN THOUSANDS)

                                                                      2002      2001       2000
                                                                    --------  ---------  ---------
<S>                                                                 <C>       <C>        <C>

Cash flows from operating activities:
  Net income (loss)                                                 $ 1,427   $ 12,546   $ (8,952)
  Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:
    Loss from discontinued operations                                    --         --      2,500
    Gain on conversion of debt to convertible preferred stock            --    (11,251)        --
    Loss on impairment of assets                                        334         --        450
    Bad debt expense                                                    220        245        300
    Write-off and amortization of deferred loan costs                    --         24        339
    Depreciation and other amortization                               1,474      1,838      2,767
    Gain on liquidation of notes receivable                              --       (175)        --
    Gain on sale of investments                                          (2)      (101)       (18)
    Gain on sale of property and equipment                               --         --        (83)
    Gain on sale of subsidiary                                          (14)        --         --
    Contribution to retirement plan in the form
      of common stock, at fair value                                     87         51         --
  Changes in operating assets and liabilities, excluding
    effects of acquisition:
    Accounts receivable                                                 103       (306)      (100)
    Other current assets                                                241        685       (667)
    Other assets                                                         69         58       (129)
    Accounts payable                                                   (653)      (144)      (355)
    Accrued expenses                                                 (1,271)    (2,063)     3,266
    Claims payable and claims incurred but not reported              (1,440)    (1,649)    (1,092)
    Deferred premium revenue                                            607       (469)      (562)
                                                                    --------  ---------  ---------
  Net cash provided by (used in) operating activities                 1,182       (711)    (2,336)

Cash flows from investing activities:
  Purchases of investments available-for-sale                        (3,448)   (15,599)   (42,477)
  Proceeds from sale/maturity of investments available-for-sale       7,334     16,878     31,941
  Cash paid for acquisition of business, net of cash acquired        (2,708)        --         --
  Purchases of property and equipment                                  (444)    (1,109)      (646)
  Proceeds from sale of property and equipment                           --         --        218
  Payments received on notes receivable                                  14      1,320      1,305
  Proceeds from sale of subsidiary                                       77         --         --
  Additions to deferred loan costs                                       --         --       (339)
                                                                    --------  ---------  ---------
    Net cash provided by (used in) investing activities                 825      1,490     (9,998)

Cash flows from financing activities:
  Borrowings on long-term debt                                        2,000         --      8,000
  Increase in accrued interest that was converted to equity in 2001      --        321      3,783
  Payments on debt and capital lease obligations                     (1,663)      (235)      (255)
  (Decrease) increase in bank overdrafts                               (896)      (674)       779
  Repurchase of common stock                                             --        (10)        --
  Exercise of stock options                                              49         43         --
  Increase (decrease) in other long-term liabilities                     42       (108)      (231)
                                                                    --------  ---------  ---------
    Net cash provided by (used in) financing activities                (468)      (663)    12,076
                                                                    --------  ---------  ---------
Net increase (decrease) in cash and cash equivalents                  1,539        116       (258)
Cash and cash equivalents at beginning of year                        1,497      1,381      1,639
                                                                    --------  ---------  ---------

Cash and cash equivalents at end of year                            $ 3,036   $  1,497   $  1,381
                                                                    ========  =========  =========

                                     (Continued on next page)
</TABLE>


                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
                    YEARS ENDED DECEMBER 31, 2002, 2002, AND 2000
                                   (IN THOUSANDS)

                                                              2002     2001     2000
                                                            --------  -------  ------
<S>                                                         <C>       <C>      <C>

Supplementary information:
  Cash paid during the year for interest                    $   207   $   315  $  720

Supplementary disclosure of non-cash activities:
  Debt converted into convertible preferred stock           $    --   $41,250  $   --
  Purchases of property and equipment through capital leases  1,836        --      --
  Issuance of debt in exchange for cancellation of lease         --        --     500

  Liabilities assumed in acquisition of business:
    Fair value of assets acquired, excluding cash           $ 2,670   $    --  $   --
    Goodwill related to transaction                           4,670        --      --
    Less - Secured convertible note issued to seller         (2,625)       --      --
    Less - Common stock issued in transaction                (1,040)       --      --
    Less - Cash paid in transaction, net of cash acquired    (2,708)       --      --
                                                            --------  -------  ------
      Liabilities assumed in acquisition of business        $   967   $    --  $   --
                                                            ========  =======  ======

          See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      F-7
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------

SafeGuard  Health  Enterprises,  Inc.,  a  Delaware corporation (the "Company"),
provides  a  wide range of dental benefit plans, vision benefit plans, and other
related  products. The Company's operations are primarily in California, Florida
and  Texas,  but  it also operates in several other states. The Company conducts
its  operations  through  several  subsidiaries,  one  of  which is an insurance
company that is licensed in several states, and several of which are licensed as
dental health maintenance organization ("HMO") plans in the states in which they
operate.  The  Company  provides  dental  benefits and other related products to
approximately  800,000  individuals. The Company was founded as a not-for-profit
entity  in California in 1974, and was converted to a for-profit entity in 1982.

Under  the  dental  HMO  plan designs provided by the Company, a majority of the
total  health  care  services  expense consists of capitation payments to dental
service providers, which are fixed monthly payments for each covered individual.
These  capitation  arrangements limit the amount of risk assumed by the Company.
Under  the dental preferred provider organization ("PPO")/indemnity plan designs
provided  by  the  Company,  all health care services expense consists of claims
that  are  paid  each time a covered individual receives dental services.  Under
this  type  of  plan  design,  the  Company assumes all of the utilization risk.
Capitation  payments  comprised  33%,  37% and 41% of the Company's total health
care  services  expense during the years ended December 31, 2002, 2001 and 2000,
respectively.

BASIS OF PRESENTATION

The  consolidated  financial  statements include all the accounts of the Company
and  its  subsidiaries.  Intercompany  accounts  and  transactions  have  been
eliminated  in  consolidation.  The  Company's consolidated financial statements
were prepared in accordance with accounting principles generally accepted in the
United  States  of  America.

BUSINESS SEGMENT INFORMATION

Management  views  certain  geographic areas as separate operating segments, and
therefore, measures the Company's operating results separately for each of those
geographic  areas.  The Company provides essentially the same services in all of
the geographic areas in which it operates. For financial reporting purposes, all
the  Company's  operating  segments  are  aggregated into one reporting segment,
which  provides  dental  benefit  plans and other related products to employers,
individuals  and  other  purchasers.

CASH AND CASH EQUIVALENTS

Investments  with  an  original maturity of three months or less are included in
cash  equivalents.

RESTRICTED DEPOSITS AND MINIMUM NET WORTH REQUIREMENTS

Several  of  the  Company's  subsidiaries  are subject to state regulations that
require them to maintain restricted deposits in the form of cash or investments.
The Company had total restricted deposits of $3.3 million and $2.8 million as of
December  31,  2002  and  2001,  respectively.

In  addition,  several  of  the  Company's  subsidiaries  are  subject  to state
regulations  that  require them to maintain minimum amounts of statutory capital
and  surplus.  The  aggregate  minimum  statutory  capital  and  surplus that is
required  with  respect to all of the Company's subsidiaries that are subject to
minimum  capital  and  surplus requirements was approximately $8.8 million as of
December  31,  2002.  The  aggregate  statutory  capital  and  surplus  in these
subsidiaries  as  of  December  31,  2002, was approximately $9.9 million.  As a
result  of  these  regulatory  requirements,  approximately $10.3 million of the
Company's  consolidated  stockholders'  equity  as of December 31, 2002, was not
available  for  the  payment  of  dividends  to  the  Company's  stockholders.


                                      F-8
<PAGE>
INVESTMENTS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting  for Certain Investments in Debt and Equity Securities," the Company
has  classified  its investments as "available-for-sale." Investments classified
as  available-for-sale are carried at fair value, based on quoted market prices,
and unrealized gains and losses, net of applicable income taxes, are reported in
stockholders' equity under the caption "Accumulated other comprehensive income."
In  the  event  there  was  an unrealized loss on an investment that the Company
believed to be other than temporary, the loss would be reported in the statement
of  operations,  instead of in a separate caption of stockholders' equity. As of
December  31, 2002, there were no unrealized losses that the Company believed to
be  other  than  temporary.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The  accompanying  consolidated  balance  sheets include the following financial
instruments  as  of  December  31, 2002: cash and cash equivalents, investments,
accounts  receivable,  notes  receivable,  accounts  payable,  accrued expenses,
short-term  and  long-term  debt,  and other long-term liabilities. All of these
financial  instruments,  except  for notes receivable, long-term debt, and other
long-term  liabilities,  are  current assets or current liabilities. The Company
expects  to  realize  the  current  assets,  and to pay the current liabilities,
within a short period of time. Therefore, the carrying amount of these financial
instruments approximates fair value. Notes receivable, which are long-term, have
been written down to the Company's estimate of their net realizable value, which
approximates  fair  value.  Long-term  debt  and other long-term liabilities are
stated  at the present value of the expected future payments, which approximates
fair  value.

PROPERTY AND EQUIPMENT

Property  and  equipment  is recorded at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
assets.  Depreciation  of  leasehold  improvements  is  calculated  based on the
shorter  of  the  estimated  useful  lives  of  the assets, or the length of the
related  lease.  The  Company  uses  the  following  useful  lives  to  record
depreciation  expense: leasehold improvements - 5 to 10 years; computer hardware
and  software - 3 to 4 years; and furniture, fixtures and other office equipment
-  5  to  7  years. The cost of maintenance and repairs is expensed as incurred,
while significant improvements that extend the estimated useful life of an asset
are  capitalized.  Upon  the sale or other retirement of assets, the cost of any
such  assets and the related accumulated depreciation are removed from the books
and  any  resulting  gain  or  loss  is  recognized.

GOODWILL

Goodwill as of December 31, 2002 consists of $4.7 million of goodwill related to
the acquisition of Paramount Dental Plan, Inc. ("Paramount") in August 2002 (see
Note  2),  and  $3.9  million  of  goodwill  related  to  the  acquisition  of a
Texas-based  dental  HMO  company  in  1996.  In  the  case of each acquisition,
goodwill  represents  the  excess  of the purchase price of the acquired company
over  the  fair  value  of  the net assets acquired, and in the case of the 1996
acquisition, the balance is net of accumulated amortization and an adjustment in
1999  to  reduce  the carrying value of the goodwill to its estimated realizable
value.  The  Company estimated that the goodwill related to the 1996 acquisition
had  a  useful  life  of  40  years  from the date of acquisition of the related
entity,  and  amortized the goodwill over that period through December 31, 2001.
See  Recently Adopted Accounting Principles below in this Note 1 for information
on  the  Company's  adoption  of  SFAS  No.  142, "Goodwill and Other Intangible
Assets,"  which  changed  the accounting for goodwill effective January 1, 2002.

INTANGIBLE ASSETS

Intangible  assets as of December 31, 2002 consist of customer relationships and
other intangible assets with an aggregate net book value of $2.0 million, all of
which  were  acquired  in connection with the acquisition of Paramount in August
2002,  as  discussed  in  Note  2.  The  amount  of  the purchase price that was
allocated  to  each of the intangible assets was equal to the Company's estimate
of  the  fair value of each asset. Each intangible asset is being amortized over
its  estimated  useful  life  on  a  straight-line  basis.


                                      F-9
<PAGE>
LONG-LIVED ASSETS

In  accordance  with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived  Assets,"  long-lived  assets  are  reviewed for events or changes in
circumstances  that  indicate that their carrying values may not be recoverable.
The  Company's  principal long-lived assets as of December 31, 2002 are property
and  equipment, intangible assets and notes receivable. The Company is not aware
of  any  events  or  circumstances  that may have affected the fair value of its
property  and  equipment  or  intangible  assets. See Note 8 for a discussion of
impairment  charges  with  respect  to  notes  receivable.

RECOGNITION OF PREMIUM REVENUE AND COMMISSION EXPENSE

Premium  revenue  is  recognized  in  the period during which dental coverage is
provided to the covered individuals. Payments received from customers in advance
of the related period of coverage are reflected on the accompanying consolidated
balance  sheet  as  deferred  premium  revenue.

In connection with its acquisition of new customers, the Company pays broker and
consultant  commissions  based on a percentage of premium revenue collected. The
Company  also pays internal sales commissions, some of which are earned based on
a  percentage  of  premium  revenue  collected,  and  some of which consist of a
one-time  payment  at the beginning of a customer contract. Commissions that are
based on a percentage of premium revenue collected are recognized as expenses in
the period in which the related premium revenue is recognized.  Commissions that
consist  of  a  one-time  payment  at  the  beginning of a customer contract are
recognized  as  expenses  at  the beginning of the related customer contract. As
stated  in  SFAS  No.  60,  "Accounting  and  Reporting by Insurance Companies,"
commissions  related to insurance contracts should be capitalized and charged to
expense over the term of the customer contract, in proportion to premium revenue
recognized.  In  the  case of the PPO/indemnity insurance policies issued by the
Company, the customers have the ability to cancel the policy at any time with 30
days  advance written notice. Because of this ability, one-time commissions paid
at  the beginning of a customer contract are charged to expense at the beginning
of  the  related  customer  contract.

RECOGNITION OF HEALTH CARE SERVICES EXPENSE

Capitation  payments  to  providers  are  recognized as expense in the period in
which  the  providers are obligated to deliver the related health care services.
Other  payments for health care services are recognized as expense in the period
in  which  the  services  are  delivered.

The  estimated liability for claims payable and claims incurred but not reported
is  based  primarily  on  the  average  historical  lag time between the date of
service  and  the  date the related claim is paid by the Company, and the recent
trend  in  payment  rates  and the average number of incurred claims per covered
individual.  Since  the liability for claims payable and claims incurred but not
reported  is  an  actuarial  estimate,  the amount of claims eventually paid for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.

ADMINISTRATIVE SERVICES ARRANGEMENTS

The Company processed approximately $2.6 million, $3.2 million, and $3.2 million
of  dental  claims  under administrative services only ("ASO") agreements during
the  years  ended  December  31, 2002, 2001 and 2000, respectively.  The revenue
recognized  by  the  Company  from  ASO agreements consists only of the ASO fees
received  from  its  clients,  and the claims processed by the Company under ASO
agreements  are  not  included  in  the  accompanying consolidated statements of
operations.

STOCK-BASED COMPENSATION

SFAS  No.  123,  "Accounting for Stock-Based Compensation," provides a choice of
two different methods of accounting for stock options granted to employees. SFAS
No.  123  encourages,  but  does not require, entities to recognize compensation
expense  equal  to  the fair value of employee stock options granted. Under this
method  of accounting, the fair value of a stock option is measured at the grant
date,  and  compensation  expense is recognized over the period during which the
stock option becomes exercisable. Alternatively, an entity may choose to use the
accounting  method  described in Accounting Principles Board Opinion ("APB") No.
25,  "Accounting  for  Stock  Issued  to  Employees."  Under  APB  No.  25,  no


                                      F-10
<PAGE>
compensation  expense  is  generally recognized as long as the exercise price of
each  stock option is at least equal to the market price of the underlying stock
at  the  time  of  the  grant. If an entity chooses to use the accounting method
described  in  APB  No.  25,  SFAS No. 123 requires that the pro forma effect of
using  the  fair  value method of accounting on its net income be disclosed in a
note  to  the financial statements.

The Company has chosen to use the accounting method described in APB No. 25. All
stock  options granted by the Company have an exercise price equal to the market
value of the Company's common stock on the date of grant, and accordingly, there
is  no  employee  compensation  expense  related  to stock options reflected the
accompanying  consolidated  statements  of operations. The weighted average fair
value  of  stock  options granted by the Company was $0.75, $1.13, and $0.76 per
share  during  the  years  ended December 31, 2002, 2001 and 2000, respectively.
Stock  options granted generally become exercisable in equal annual installments
over  a  three-year  period  after  the  date  of  grant.

The following table shows the pro forma effect of using the fair value method of
accounting for stock options, as described by SFAS No. 123, on the Company's net
income  (loss)  and  net income (loss) per share (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                       ---------------------------
                                                         2002     2001      2000
                                                       -------  --------  --------
<S>                                                    <C>      <C>       <C>
  Net income (loss), as reported                       $1,427   $12,546   $(8,952)
  Less - Employee compensation expense based
    on the fair value method of accounting for
    stock options, net of applicable tax effect          (856)     (833)     (781)
                                                       -------  --------  --------

  Pro forma net income (loss)                          $  571   $11,713   $(9,733)
                                                       =======  ========  ========

  Basic net income (loss) per share, as reported       $ 0.04   $  0.39   $ (1.89)
  Pro forma basic net income (loss) per share            0.02      0.36     (2.05)

  Diluted net income (loss) per share, as reported     $ 0.04   $  0.38   $ (1.89)
  Pro forma diluted net income (loss) per share          0.02      0.35     (2.05)
</TABLE>

SFAS  No.  123  requires  a publicly traded entity to estimate the fair value of
stock-based  compensation  by  using  an  option-pricing  model  that takes into
account  certain  facts  and assumptions. The facts and assumptions that must be
taken  into account are the exercise price, the expected life of the option, the
current  stock  price,  the expected volatility of the stock price, the expected
dividends  on  the  stock,  and  the risk-free interest rate. The option-pricing
models  commonly  used  were  developed  to  estimate  the  fair value of freely
tradable,  fully  transferable  options  without  vesting  restrictions,  which
significantly  differ from the stock options granted by the Company. The Company
estimated  the  fair value of each stock option as of the date of grant by using
the  Black-Scholes  option-pricing  model.  The  facts  and  assumptions used to
determine the fair value of stock options granted were: an average expected life
of  four  years;  expected  volatility of 82% in 2002, 160% in 2001, and 184% in
2000; no expected dividends; and a risk-free interest rate of approximately 2.0%
in  2002, 3.8% in 2001, and 6.0% in 2000. The assumptions regarding the expected
life  of  the  options  and  the  expected  volatility  of  the  stock price are
subjective,  and  these  assumptions  have a significant effect on the estimated
fair  value  amounts.

INCOME TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  liabilities  and  assets for the expected future tax consequences of events
that  are  recognized  in  the  Company's  consolidated  financial statements in
different periods than those in which the events are recognized in the Company's
tax  returns. The measurement of deferred tax liabilities and assets is based on
current  tax  laws as of the balance sheet date. The Company records a valuation
allowance  related  to  deferred tax assets in the event that available evidence
indicates  that  the  future tax benefits related to the deferred tax assets may
not  be  realized. A valuation allowance is required when it is more likely than
not  that  the  deferred  tax  assets  will  not  be  realized.

RELATED PARTY TRANSACTIONS

The  Company  paid  $153,000,  $200,000  and  $117,000 of consulting fees to the
chairman  of  its  board  of directors during the years ended December 31, 2002,
2001  and  2000,  respectively.

See  Notes  2  and 10 for information regarding a secured convertible promissory
note  payable  to  a  member of the Company's senior management, the outstanding
balance  of which was $2.4 million as of December 31, 2002. The convertible note
was issued in the acquisition of Paramount Dental Plan, Inc. in August 2002, and
the  former  owner  of  Paramount  is currently a member of the Company's senior
management.

See  Note  10 for information regarding a $2.0 million working capital loan from
one  of  the  Company's  principal  stockholders  in  August 2002, of which $1.8
million  was  outstanding  as  of December 31, 2002. See Note 11 for information
regarding  an $8.0 million senior investor loan from stockholders of the Company
in  March  2000,  none  of  which  was  outstanding  as  of  December  31, 2002.

ADVERTISING

Advertising  expense  was  $185,000,  $110,000,  and $49,000 for the years ended
December  31,  2002,  2001  and  2000,  respectively.

USE OF ESTIMATES IN FINANCIAL STATEMENTS

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United States of America requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  the  disclosure  of  contingent  assets  and  liabilities, and the
reported  amounts  of  revenues  and  expenses. Actual results could differ from
those  estimates.

INCOME (LOSS) PER SHARE

Income  (loss) per share is presented in accordance with SFAS No. 128, "Earnings
Per  Share."  Basic net income (loss) per share is based on the weighted average
common  shares  outstanding,  including  the  common  shares  into  which  the
convertible  preferred  stock  is convertible, but excluding the effect of other
potentially  dilutive  securities. The number of basic common shares outstanding
includes  the  common  share  equivalents  of  the  convertible preferred stock,
because  the  Company  believes  the  convertible preferred stock is essentially
equivalent  to  common  stock,  based  on all the rights and preferences of both
types  of  stock.  Diluted  net  income  (loss)  per  share  is  based  on  the
weighted-average  common  shares  outstanding,  including  the  effect  of  all
potentially dilutive securities. During the three years ended December 31, 2002,
the  potentially  dilutive  securities  of  the  Company  that  were outstanding
consisted  of  stock  options,  convertible  notes,  and  warrants.  The  only
convertible  notes  issued  by  the  Company  were the two (2) convertible notes
issued during the three months ended September 30, 2002, as discussed in Notes 2


                                      F-11
<PAGE>
and  10.  Both  of these convertible notes would have an anti-dilutive effect on
net  income  per  share  in  2002.  Accordingly,  they  are  excluded  from  the
calculation  of diluted net income per share for this period. The calculation of
diluted  net  income  per  share  for the years ended December 31, 2002 and 2001
includes  the  effect  of  all  outstanding stock options with an exercise price
below the average market price of the Company's common stock during each period.
There were no outstanding stock options or warrants with an exercise price below
the  average  market  price  of the Company's common stock during the year ended
December 31, 2000.  Accordingly, the Company's diluted net loss per share is the
same  as  its basic net loss per share for that period. The only warrants issued
by the Company were canceled without being exercised effective January 31, 2001,
as  discussed  in  Note  11.

The  differences  between weighted average basic shares outstanding and weighted
average diluted shares outstanding in each of the three years ended December 31,
2002,  are  as  follows  (in  thousands):

                                                     2002    2001   2000
                                                    ------  ------  -----
     Weighted average basic shares outstanding      35,130  32,253  4,747
     Effect of dilutive stock options                  508     756     --
                                                    ------  ------  -----

       Weighted average diluted shares outstanding  35,638  33,009  4,747
                                                    ======  ======  =====

RECENTLY ADOPTED ACCOUNTING PRINCIPLES

In  July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141,  "Business  Combinations."  SFAS  No.  141 requires the use of the purchase
method of accounting for all business combinations initiated after June 30, 2001
and  eliminates  the  pooling-of-interests method of accounting. The adoption of
SFAS  No.  141  had no significant effect on the Company's financial statements.
See  Note  2  for  a  business  combination  completed  in  August  2002.

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible  Assets."  SFAS  No.  142 requires that goodwill and other intangible
assets with indefinite useful lives not be amortized. SFAS No. 142 also requires
that all goodwill be evaluated for possible impairment as of January 1, 2002, on
an  annual  basis  thereafter,  and any time an event that may have affected the
value  of  the  goodwill  occurs.  SFAS No. 142 also establishes a new method of
testing  goodwill  for  possible impairment. The adoption of SFAS No. 142 had no
significant  effect on the Company's consolidated financial statements. See Note
6  for  more  information.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  Of,"  and  APB  No.  30,  "Reporting  the  Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual,  and  Infrequently  Occurring  Events  and  Transactions." SFAS No. 144
establishes accounting and reporting standards for the impairment or disposal of
long-lived assets, and for reporting the results of discontinued operations. The
Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No.
144  had  no  significant  effect  on  the  Company's  consolidated  financial
statements.

In  April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4,  44,  and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS  No.  145  updates,  clarifies,  and  simplifies  existing  accounting
pronouncements. This statement rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of any related income tax effect. As a result, the
criteria in APB No. 30 will now be used to classify those gains and losses. SFAS
No.  44  has  been  rescinded, as it is no longer necessary. SFAS No. 64 amended
SFAS  No.  4  and is no longer necessary, as SFAS No. 4 has been rescinded. SFAS
No. 145 amends SFAS No. 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions must be accounted for in
the  same  manner  as  sale-leaseback transactions, and to require that the fair
value of a lease guarantee be recorded as a liability on the guarantor's balance
sheet  for  all  guarantees issued after May 15, 2002. This statement also makes
certain  technical  corrections  to  existing  pronouncements.  While  those
corrections  are  not  substantive in nature, in some instances, they may change
accounting  practice.  SFAS  No.  145  is  generally  effective  for  financial
statements  issued  after  May  15,  2002.  The  adoption of SFAS No. 145 had no
significant  effect  on  the  Company's  consolidated  financial  statements.


                                      F-12
<PAGE>
In  December  2002,  the  FASB  Issued SFAS No. 148, "Accounting for Stock-Based
Compensation  -  Transition  and  Disclosure," which is an amendment of SFAS No.
123, "Accounting fo     (C)              (C)       (C)  S       No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method  of  accounting  for stock-based employee compensation.  It also requires
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method  used  on  reported  results.  SFAS No. 148 is effective for fiscal years
ending  after December 15, 2002. The adoption of SFAS No. 148 had no significant
effect  on  the  Company's  consolidated  financial  statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In  August  2001,  the  FASB  issued  SFAS  No. 143, "Accounting for Obligations
Associated  with  the Retirement of Long-Lived Assets." SFAS No. 143 establishes
accounting  and  reporting  standards  for the recognition and measurement of an
asset  retirement  obligation and the associated asset retirement cost. SFAS No.
143  is  effective  for  fiscal years beginning after June 15, 2002. The Company
expects that SFAS No. 143 will not have a significant effect on its consolidated
financial  statements.

In  July  2002,  the  FASB issued SFAS No. 146, "Accounting for Costs Associated
with  Exit  or  Disposal Activities." SFAS No. 146 requires that a liability for
the  cost  of  an  exit or disposal activity be recognized when the liability is
incurred.  SFAS  No.  146 also requires that the liability be initially measured
and  recorded  at fair value. SFAS No. 146 supersedes Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits  and  Other Costs to Exit an Activity (including Certain Costs Incurred
in  a  Restructuring)." Under EITF Issue No. 94-3, a liability for an exit cost,
as  defined  in  the  EITF  Issue,  was  recognized  at  the date of an entity's
commitment  to  an  exit  plan.  SFAS  No. 146 is effective for exit or disposal
activities  that  are  initiated  after  December  31,  2002.

In  November  2002,  the  FASB  issued  FASB  Interpretation  ("FIN")  No.  45,
"Guarantor's  Accounting  and  Disclosure Requirements for Guarantees, Including
Indirect  Guarantees of Indebtedness of Others." FIN No. 45 is an interpretation
of  FASB  Statements  No.  5,  57,  and  107,  and  a  rescission of FIN No. 34,
"Disclosure  of  Indirect  Guarantees  of  Indebtedness  of Others."  FIN No. 45
requires  that  a  guarantor recognize a liability for the fair value of certain
types  of  guarantees,  at  the  time  the guarantee is initially made.  It also
elaborates  on  the  financial  statement  disclosures to be made by a guarantor
about  its  obligations  under  certain  types  of  guarantees.  The  initial
recognition  and measurement provisions of this interpretation are applicable on
a  prospective  basis  to guarantees issued or modified after December 31, 2002.
The  disclosure  requirements are effective for financial statements for periods
ending  after  December  15,  2002. The Company expects that FIN No. 45 will not
have  a  significant  effect  on  its  consolidated  financial  statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities," an interpretation of Accounting Research Bulletin No. 51.  FIN No. 46
requires  that  variable  interest  entities  be  consolidated  by the investing
company if the investing company is obligated to absorb a majority of the losses
incurred  by  the variable interest entity, or is entitled to receive a majority
of  the  profits  earned  by  the  entity,  or  both.  FIN  No. 46 also requires
disclosures about significant variable interests in entities that don't meet the
criteria  for  consolidation.  The  consolidation requirements of FIN No. 46 are
effective  for  all  periods  with  respect  variable interest entities that are
created  after January 31, 2003.  The consolidation requirements with respect to
variable  interest  entities created prior to February 1, 2003 are effective for
periods  beginning  after  June  15,  2003.  The  disclosure  requirements  are
effective  for  all  financial  statements  issued  after January 31, 2003.  The
Company  had  no  variable interest entities as of December 31,2002, and expects
that FIN No. 46 will not have a significant effect on its consolidated financial
statements.

RECLASSIFICATION

Certain  amounts  in  the  financial  statements  for  prior  years  have  been
reclassified  to  conform  to  the  current  year  presentation.


                                      F-13
<PAGE>
NOTE 2. ACQUISITION
-------------------

Effective  August  30, 2002, the Company acquired all of the outstanding capital
stock  of  Paramount  Dental  Plan,  Inc.  ("Paramount") for a purchase price of
approximately  $6.7  million,  consisting  of  $3.0  million  in cash, a secured
convertible  note  for  $2,625,000,  and  769,231 shares of the Company's common
stock.  Paramount  was  a  dental  benefits  company located in Florida, and was
merged  into  the  Company's  dental  HMO effective August 30, 2002. The secured
convertible  note  bears  interest  at 7.0% annually, and is payable in 36 equal
monthly  installments  of principal and interest, beginning in October 2002. The
outstanding  balance  under  the  secured  convertible  note is convertible into
common  stock  of  the Company at a conversion price of $1.625 per share, at any
time  after August 30, 2003. The convertible note is secured by the stock of the
Company's  dental  HMO  subsidiary  in  Florida.

The  business  purpose  of  the acquisition was to increase the Company's market
penetration  in  Florida,  which  is  one  of  the  Company's primary geographic
markets.  The  acquisition  increased the number of members in Florida for which
the  Company  provides  dental  benefits  from  approximately  50,000 members to
approximately  275,000  members.

In  connection  with  this  transaction,  the  Company entered into a three-year
employment  agreement with the seller of Paramount, who is currently employed as
president  of  the Company's operations in Florida. Also in connection with this
transaction,  the  Company entered into a three-year office lease agreement with
the  seller of Paramount, the term of which started in November 2002, related to
the  office space that is currently used as the Company's primary administrative
office  in  Florida.

The  cost  of the acquisition was allocated among the assets acquired as follows
(in  thousands):

     Cost of acquisition:
       Cash portion of purchase price                     $  3,000
       Secured convertible note issued to seller             2,625
       Common stock issued to seller                         1,040
                                                          ---------
         Purchase price paid to seller                       6,665
       Transaction expenses incurred by the Company            164
                                                          ---------
         Total cost                                       $  6,829
                                                          =========

     Fair value of net assets acquired:
       Cash and cash equivalents                          $    456
       Restricted investment                                    50
       Property and equipment                                  121
       Goodwill                                              4,670
       Intangible assets                                     2,270
       Other assets                                            229
       Accounts payable and accrued expenses                  (386)
       Claims payable and claims incurred but not reported    (225)
       Deferred premium revenue                               (356)
                                                          ---------
         Net assets acquired                              $  6,829
                                                          =========

The  value  indicated  above  for  the  Company's  common  stock  issued  in the
acquisition  is  based  on  769,231  shares of common stock issued, and a market
value  of  $1.35  per  share. The market value of $1.35 per share is the average
closing  price  of  the  Company's  common stock during the period from five (5)
business  days  prior  to  execution of the Stock Purchase Agreement to five (5)
business days after execution of the agreement. The Stock Purchase Agreement was
executed  on  April  24,  2002.


                                      F-14
<PAGE>
The  intangible  assets  acquired  consist  of  the  following  (in  thousands):

                                                                WEIGHTED
                                                                 AVERAGE
                                                    AMOUNT    AMORTIZATION
                                                  ALLOCATED      PERIOD
                                                  ----------  ------------
     Customer relationships                       $    1,926     4.5 years
     Other intangible assets                             344    10.1 years
                                                  ----------

       Total                                      $    2,270     5.3 years
                                                  ==========

None  of  the  amortization  expense  related  to the above intangible assets is
deductible  for  income  tax  purposes,  and  there  is no goodwill amortization
related  to  this  transaction  that  is  deductible  for  income  tax purposes.

The  operations  of  Paramount  are  included  in  the accompanying consolidated
financial  statements  beginning  on September 1, 2002. Following is certain pro
forma  statement  of  operations  information, which reflects adjustments to the
Company's  historical  financial  statements  as  if  the  acquisition  had been
completed  as  of  the  beginning  of  each  period  presented  (in  thousands):

                                                        YEARS ENDED DECEMBER 31,
                                                        ------------------------
                                                             2002        2001
                                                        ------------  ----------
                                                               (unaudited)

  Premium revenue, net                                   $    88,322  $   90,863
  Operating income                                               470       1,504
  Income before extraordinary item                             1,499       1,852
  Net income                                                   1,499      13,103

  Basic net income per share before extraordinary item   $      0.04  $     0.06
  Basic net income per share                                    0.04        0.40

  Diluted net income per share before extraordinary item $      0.04  $     0.06
  Diluted net income per share                                  0.04        0.39

The  above  pro  forma  statement  of  operations information is not intended to
indicate  the  results  that would have occurred if the acquisition had actually
been  completed  on  the  dates  indicated, or the results that may occur in any
future  period.

NOTE 3. DISCONTINUED OPERATIONS
-------------------------------

ACCOUNTING TREATMENT OF CERTAIN SALE TRANSACTIONS

The  Company sold all of its general dental practices in 1996 and 1997, and sold
all  of  its  orthodontic  practices  in  1998.  Certain  of  the general dental
practices  and  all of the orthodontic practices were sold to a single purchaser
(the  "Purchaser"), in exchange for $23.0 million of long-term promissory notes.
Due  to uncertainty about the Purchaser's ability to meet its commitments to the
Company  under  the promissory notes, the Company did not treat the transactions
with  the  Purchaser  as sales for accounting purposes, notwithstanding the fact
that  these  transactions  were  legally  structured  as sales. Accordingly, the
related  promissory  notes  were  not  reflected  in  the  Company's  financial
statements.  Instead,  the  historical  cost  of  the  net assets of the related
general  dental  and  orthodontic  practices  were  reflected  on  the Company's
consolidated balance sheet, and were stated at their estimated realizable value.
The  Company's  consolidated  financial  statements did not reflect any gains on
these  sale  transactions, and do not reflect any interest income on the related
promissory  notes.  In  the  opinion  of  management,  this accounting treatment
appropriately  reflected the economic substance of the transactions, as distinct
from  the  legal  form  of  the  transactions.  See Note 8 for information on an
impairment  charge  recognized  in  2000 with respect to the net assets of these
dental  and  orthodontic  practices.


                                      F-15
<PAGE>
SALE OF DISCONTINUED OPERATIONS TO NEW PURCHASER

The  Purchaser  ultimately  defaulted  on its obligations to the Company and, in
October 2000, the Company completed a transaction with the Purchaser and another
third party (the "New Purchaser"), in which the practices originally sold to the
Purchaser  were  sold  to  the New Purchaser. In this transaction, the Purchaser
transferred  its  interest  in  the  dental and orthodontic practices to the New
Purchaser,  the  New  Purchaser  paid  $2.4 million to the Company and placed an
additional $1.5 million in an escrow account for the benefit of the Company, and
the  Company agreed to pay certain obligations related to these practices. These
obligations  consisted  primarily  of  payroll, dental office lease obligations,
patient  refunds,  and the obligation to complete the orthodontic treatments for
dental  HMO  patients  who  previously  paid  for  the treatments in full. These
obligations  had  to  be  paid  in  order  to  complete  the  transaction,  were
obligations  of the Company as the member's dental HMO plan, or were obligations
for  which  the  Company  could  have  been  contingently  liable  in any event.

As  of  December  31,  2002,  the  Company has collected the funds in the escrow
account, and has satisfied most of the obligations described above. However, the
ultimate  cost  of  the obligations assumed by the Company is subject to various
uncertainties,  and  the remaining amount of these obligations is reflected as a
liability  on the accompanying consolidated balance sheet based on the Company's
best  estimates.  See  Note 8 for information on an impairment charge recognized
in  2000  in  connection  with  this  transaction.

NOTE 4. INVESTMENTS
-------------------

Gross  realized gains on sales of investments were $2,000, $101,000, and $19,000
for  the  years  ended  December  31, 2002, 2001, and 2000, respectively.  Gross
realized  losses  on  sales  of  investments were zero, zero, and $1,000 for the
years ended December 31, 2002, 2001, and 2000, respectively. The historical cost
of  specific  securities sold is used to compute the gain or loss on the sale of
investments.  At  December  31,  2002,  the  Company had net unrealized gains of
$95,000,  which  is  included  in  stockholders'  equity  under  the  caption
"Accumulated  other  comprehensive  income."

The  Company's  investments  as  of  December  31, 2002 are summarized below (in
thousands):

<TABLE>
<CAPTION>
                                      COST/      ESTIMATED
                                    AMORTIZED   UNREALIZED   UNREALIZED    FAIR
                                       COST        GAINS       LOSSES      VALUE
                                    ----------  -----------  -----------  -------
<S>                                 <C>         <C>          <C>          <C>
Classified as available-for-sale:
  U.S. government and its agencies  $    2,303  $        87  $        --  $ 2,390
  State and municipal obligations          255            8           --      263
  Other marketable debt securities      10,269           --           --   10,269
                                    ----------  -----------  -----------  -------

    Total available-for-sale        $   12,827  $        95  $        --  $12,922
                                    ==========  ===========  ===========  =======
</TABLE>

The  maturity  dates  of  the  Company's investments as of December 31, 2002 are
summarized  below  (in  thousands):

                                          COST/     ESTIMATED
                                        AMORTIZED      FAIR
                                           COST       VALUE
                                        ----------  ----------
     Classified as available-for-sale:
       Due in 2003                      $   11,434  $   11,446
       Due in 2004                             168         178
       Due in 2005 and thereafter            1,225       1,298
                                        ----------  ----------

         Total available-for-sale       $   12,827  $   12,922
                                        ==========  ==========


                                      F-16
<PAGE>
The  Company's  investments  as  of  December  31, 2001 are summarized below (in
thousands).

<TABLE>
<CAPTION>
                                      COST/      ESTIMATED
                                    AMORTIZED   UNREALIZED    UNREALIZED    FAIR
                                       COST        GAINS        LOSSES      VALUE
                                    ----------  -----------  ------------  -------
<S>                                 <C>         <C>          <C>           <C>
Classified as available-for-sale:
  U.S. government and its agencies  $    2,757  $        57  $        (2)  $ 2,812
  State and municipal obligations          255            8           --       263
  Other marketable debt securities      13,712           --           --    13,712
                                    ----------  -----------  ------------  -------

    Total available-for-sale        $   16,724  $        65  $        (2)  $16,787
                                    ==========  ===========  ============  =======
</TABLE>

NOTE 5. PROPERTY AND EQUIPMENT
------------------------------

The  Company's  property  and equipment consist of the following (in thousands):

                                                               DECEMBER  31,
                                                            ------------------
                                                              2002      2001
                                                            --------  --------
  Leasehold improvements                                    $   842       841
  Furniture and office equipment                              1,504       634
  Computer hardware and software                              7,767    10,527
                                                            --------  --------
    Total, at cost                                           10,113    12,002
  Less - accumulated depreciation and amortization           (6,581)   (9,654)
                                                            --------  --------

    Total, net of accumulated depreciation and amortization $ 3,532   $ 2,348
                                                            ========  ========

The  Company's  property and equipment that was acquired through capital leases,
which  is  included  above,  consists  of  the  following  (in  thousands):

                                                             DECEMBER 31,
                                                            ----------------
                                                             2002      2001
                                                            -------  -------
  Furniture and office equipment                            $  950   $    --
  Computer software                                          1,250        --
                                                            -------  -------
    Total cost of property acquired through capital leases   2,200        --
  Less - accumulated depreciation and amortization            (344)       --
                                                            -------  -------

    Total, net of accumulated depreciation and amortization $1,856   $    --
                                                            =======  =======

NOTE 6. GOODWILL
----------------

Changes  in  the  carrying  amount  of  goodwill were as follows (in thousands):

                                                        YEARS ENDED DECEMBER 31,
                                                        ------------------------
                                                           2002         2001
                                                        -----------  -----------
  Balance at beginning of year                          $     3,920  $    4,033
  Goodwill acquired (see Note 2)                              4,670          --
  Goodwill amortization                                          --        (113)
                                                        -----------  -----------

    Balance at end of year                              $     8,590  $    3,920
                                                        ===========  ===========


                                      F-17
<PAGE>
In  accordance  with  SFAS  No.  142, the Company ceased amortizing its goodwill
effective January 1, 2002. The Company recorded $113,000 of amortization expense
related  to  goodwill  during  each of the two years ended December 31, 2001 and
2000.  The  Company's  adjusted  results of operations for the three years ended
December  31,  2002, which are adjusted to exclude goodwill amortization, are as
follows  (in  thousands):

                                               YEARS ENDED DECEMBER 31,
                                              --------------------------
                                                2002    2001      2000
                                              -------  -------  --------
Income (loss) before discontinued operations
  and extraordinary item, as reported         $ 1,427  $ 1,295  $(6,452)
Add back - Goodwill amortization                   --      113      113
                                              -------  -------  --------
Income (loss) before discontinued operations
  and extraordinary item, as adjusted         $ 1,427  $ 1,408  $(6,339)
                                              =======  =======  ========

Net income (loss), as reported                $ 1,427  $12,546  $(8,952)
Add back - Goodwill amortization                   --      113      113
                                              -------  -------  --------

Net income (loss), as adjusted                $ 1,427  $12,659  $(8,839)
                                              =======  =======  ========

None  of  the Company's reported net income per share amounts for the year ended
December  31, 2001 would change as a result of the above adjustment for goodwill
amortization expense, due to the relatively small amount of this adjustment. For
the  year  ended  December  31,  2000,  the adjusted loss per basic share before
discontinued  operations  would  be  $1.34,  compared  to the reported amount of
$1.36, and the adjusted net loss per basic share would be $1.86, compared to the
reported  amount  of  $1.89. As noted above under "Income (Loss) Per Share," the
Company's  diluted  net  loss  per share amounts for the year ended December 31,
2000  are  the  same  as  its  basic  net  loss  per  share  amounts.

SFAS  No. 142 requires that all goodwill be evaluated for possible impairment as
of  January  1,  2002, on an annual basis thereafter, and any time an event that
may  have  affected  the  value  of  the  goodwill  occurs.  SFAS  No.  142 also
establishes  a  new  method  of testing for possible impairment. The Company has
established  October 1 as the date on which it conducts its annual evaluation of
goodwill  for  possible impairment. In accordance with SFAS No. 142, the Company
tested its goodwill for possible impairment by estimating the fair value of each
of  its  reporting  units that include goodwill, and comparing the fair value of
each  reporting unit to the book value of the net assets of each reporting unit.
For  purposes of this test, the Company has three reporting units, which are its
operations  in  California,  Florida  and  Texas.  As  of December 31, 2002, the
Company has goodwill in the Florida and Texas reporting units. The fair value of
each reporting unit was determined primarily by estimating the discounted future
cash  flows  of  the  reporting unit, and by estimating the amount for which the
reporting  unit  could  be  sold to a third party, based on a market multiple of
earnings.  The  Company had no impairment of its goodwill as of January 1, 2002,
or  as of October1, 2002, based on the method of testing for possible impairment
established by SFAS         No. 142. The Company is not aware of any events that
have  occurred  since  October  1, 2002, that may have affected the value of its
goodwill.

NOTE 7. INTANGIBLE ASSETS
-------------------------

The  Company's  intangible  assets  consist  of  the  following  (in thousands):

                                  DECEMBER 31, 2002         DECEMBER 31, 2001
                              -------------------------  -----------------------
                                GROSS                     GROSS
                              CARRYING    ACCUMULATED    CARRYING   ACCUMULATED
                               AMOUNT     AMORTIZATION    AMOUNT       VALUE
                              ---------  --------------  ---------  ------------
  Customer relationships      $   1,926  $        (253)  $      --  $         --
  Other intangible assets           344             (4)         --            --
                              ---------  --------------  ---------  ------------

    Total available-for-sale  $   2,270  $        (257)  $      --  $         --
                              =========  ==============  =========  ============


                                      F-18
<PAGE>
The  aggregate amortization expense during the years ended December 31, 2002 and
2001  and the expected amortization expense during the succeeding five years are
as  follows  (in  thousands):

     Year ended December 31, 2001                             $      120
     Year ended December 31, 2002                                    257
     Expected during the year ending:
       December  31, 2003                                     $      467
       December  31, 2004                                            467
       December  31, 2005                                            326
       December  31, 2006                                            283
       December  31, 2007                                            198

The  amortization expense during the year ended December 31, 2001 was related to
a  non-competition  agreement  that  became  fully  amortized in September 2001.

NOTE 8. IMPAIRMENT OF ASSETS
----------------------------

ASSETS OF DISCONTINUED OPERATIONS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS

Assets  of  discontinued  operations  transferred under contractual arrangements
consists  of  the  historical  cost  of the net assets of certain general dental
practices  and  certain orthodontic practices that were sold by the Company to a
single  purchaser (the "Purchaser") in 1998 and 1997, as described in Note 3. In
October 2000, the Company completed a transaction with the Purchaser and another
third  party  (the  "New  Purchaser"),  under  which  the assets of discontinued
operations  transferred  under  contractual  arrangements  were  sold to the New
Purchaser.  As a result of this transaction, the Company recorded a $2.5 million
charge  to  earnings during 2000 to reduce the carrying value of these assets to
the  estimated  net  proceeds from this transaction. This charge is reflected on
the  Company's consolidated statement of operations under the caption "Loss from
assets  transferred  under  contractual  arrangements."  See  Note  3  for  more
information  on  the  sale  transaction  completed  in  October  2000.

NOTES RECEIVABLE

The  Company's  notes  receivable  consist  of  promissory  notes  issued by the
purchasers  of  certain general dental practices sold by the Company in 1996 and
1997,  and  are  related  to  dental  practices  other  than  those  sold to the
Purchaser,  as  discussed  in Note 3. The Company reviews the carrying amount of
its  notes  receivable for possible impairment on an ongoing basis, based on its
best  estimate  of the amounts that will ultimately be collected from the notes.
During  2002 and 2000, the Company increased the reserve on its notes receivable
by recording impairment losses of $334,000 and $450,000, respectively. There was
no  impairment  loss recorded during 2001. The Company's estimate of the amounts
that  will be collected from the notes is based on the recent payment history of
the  notes,  its  estimate of the ability of the issuers to repay the notes, its
estimate  of  the  financial condition of the dental practices that comprise the
collateral  for  the notes, and its estimate of the value of the assets of those
practices.  As  of December 31, 2002, the net carrying amount of the outstanding
notes  receivable  was $457,000, which is based on the Company's estimate of the
net  realizable  value  of  the  promissory  notes.

NOTE 9. CLAIMS PAYABLE AND CLAIMS INCURRED BUT NOT REPORTED
-----------------------------------------------------------

The  Company is responsible for paying claims submitted by dentists for services
provided  to  patients  who have purchased dental coverage from the Company. The
liability for claims payable and claims incurred but not reported is an estimate
of  the  claims  related  to services delivered prior to the balance sheet date,
which  have  not  yet been paid by the Company as of the balance sheet date. The
estimate  of  claims  payable  and  claims  incurred  but  not reported is based
primarily on the average historical lag time between the date of service and the
date  the  related claim is paid by the Company, and the recent trend in payment
rates  and  the  average number of incurred claims per covered individual. Since
the  liability  for  claims  payable  and claims incurred but not reported is an
actuarial  estimate,  the amount of claims eventually paid for services provided
prior  to  the balance sheet date could differ from the estimated liability. Any
such  differences  are  included in the consolidated statement of operations for
the  period  in  which  the  differences  are  identified.


                                      F-19
<PAGE>
The amounts included in the liability for claims payable and claims incurred but
not  reported in the accompanying consolidated financial statements are the same
as  the  amounts  included  in the statutory financial statements that are filed
with  various  state  regulators  by  the  Company's  subsidiaries.

PPO/indemnity  claims  are  related to services delivered to individuals covered
under  dental  indemnity  plan  designs,  some  of  which contain a PPO feature.
Specialist  referral  claims  are  related  to  specialist services delivered to
individuals  covered  under dental HMO plan designs. Other claims are related to
primary  care  dental services delivered to individuals covered under dental HMO
plan  designs. A summary of the activity in the liability for each type of claim
is  shown  below  (in  thousands).

                                                   DENTAL HMO
                                              ---------------------
                                   PPO/       SPECIALIST
                                 INDEMNITY     REFERRAL     OTHER
                                  CLAIMS        CLAIMS      CLAIMS     TOTAL
                                -----------  ------------  --------  ---------
  Balance at January 1, 2001    $    5,778   $     1,148   $   628   $  7,554

  Incurred claims related to:
    Current year - 2001             23,582         6,047     4,161     33,790
    Prior years                       (834)         (138)     (204)    (1,176)
  Paid claims related to:
    Current year - 2001            (19,330)       (4,955)   (3,600)   (27,885)
    Prior years                     (4,944)       (1,010)     (424)    (6,378)
                                -----------  ------------  --------  ---------

  Balance at December 31, 2001       4,252         1,092       561      5,905

  Incurred claims related to:
    Current year - 2002             23,133         5,958     4,833     33,924
    Prior years                       (594)         (112)      (94)      (800)
  Paid claims related to:
    Current year - 2002            (20,092)       (5,196)   (3,946)   (29,234)
    Prior years                     (3,658)         (980)     (467)    (5,105)
                                -----------  ------------  --------  ---------

  Balance at December 31, 2002  $    3,041   $       762   $   887   $  4,690
                                ===========  ============  ========  =========

The  liability  for  claims  payable  and  claims  incurred  but not reported is
adjusted  each  year to reflect any differences between claims actually paid and
previous estimates of the liability. During each of the years ended December 31,
2002  and  2001,  the  aggregate  adjustments  to the liability to reflect these
differences,  which  are  reflected  in  the  above  table,  were  not material.

NOTE 10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
-----------------------------------------------------

Long-term  debt  and  capital  lease  obligations consisted of the following (in
thousands):

                                                    DECEMBER 31,
                                                  -----------------
                                                    2002      2001
                                                  --------  -------
  Secured convertible promissory note             $ 2,427   $   --
  Unsecured convertible promissory note             1,798       --
  Capital lease obligations                         1,202       --
  Other                                                --      265
                                                  --------  -------
    Total debt                                      5,427      265
  Less - short-term portion                        (2,430)    (265)
                                                  --------  -------

    Long-term debt and capital lease obligations  $ 2,997   $   --
                                                  ========  =======


                                      F-20
<PAGE>
See  Note  2 for a description of the secured convertible promissory note, which
was  issued  in  the  acquisition  of  Paramount  in  August  2002.

In  August  2002,  the  Company  borrowed $2.0 million from one of its principal
stockholders,  which  was  used  to  increase  the Company's working capital, to
provide  for  the payments due under the two capital leases discussed below, and
to  provide  for  the  payments  due  under  the  settlement  of the stockholder
litigation  discussed  in  Note  14.  The  borrowing was made under an unsecured
convertible  note  that  bears  interest  at 7.0% annually, and is payable in 36
equal  monthly  installments  of  principal and interest, beginning in September
2002.  The  outstanding  balance  under the convertible note is convertible into
common  stock  of  the Company at a conversion price of $1.625 per share, at any
time  after  one  year  from  the  date  of  the  borrowing.

In  June  2002,  the  Company entered into two capital lease obligations with an
aggregate value of approximately $1.8 million. The two leases are related to the
purchase  of  a  new  computer software application and the purchase of formerly
leased  furniture  for  the Company's primary administrative office. The Company
intends  to use the new software as its primary business application, which will
be  used  for  eligibility file maintenance, billing and collections, payment of
health  care  expenses, utilization review and other related activities. The new
software  application  will  replace  the  Company's two existing systems with a
single  system that can be used for all of the Company's existing product lines.
The  cost  of both of the Company's two existing systems is fully depreciated as
of  December 31, 2002.  Under each of the two capital leases, the Company has an
option  to  purchase the leased assets for $1.00 at the expiration of the lease.

Annual  maturities  of  long-term  debt  and future minimum lease payments under
capital  lease  obligations  were  as  follows,  as  of  December  31,  2002 (in
thousands):

<TABLE>
<CAPTION>
                                                       CAPITAL      LESS - AMOUNT
                                        LONG-TERM       LEASE        REPRESENTING
                                           DEBT      OBLIGATIONS       INTEREST       TOTAL
                                        ----------  --------------  --------------  ---------
<S>                                     <C>         <C>             <C>             <C>
  Payable in 2003                       $    1,461  $        1,047  $         (78)  $   2,430
  Payable in 2004                            1,567             212            (14)      1,765
  Payable in 2005                            1,197              16             (5)      1,208
  Payable thereafter                            --              30             (6)         24
                                        ----------  --------------  --------------  ---------

    Total balance at December 31, 2002  $    4,225  $        1,305  $        (103)  $   5,427
                                        ==========  ==============  ==============  =========
</TABLE>

NOTE 11. CONVERSION OF DEBT TO CONVERTIBLE PREFERRED STOCK
----------------------------------------------------------

On  March 1, 2000, the Company entered into a recapitalization agreement with an
investor group (the "Investors"), the Company's revolving credit facility lender
(the  "Bank"),  and  the  holder  of  certain senior notes payable issued by the
Company  (the  "Senior  Note Holder"). Pursuant to this agreement, the Investors
loaned  $8.0  million to the Company in the form of an investor senior loan, due
April 30, 2001. In addition, the Investors, the Bank, and the Senior Note Holder
agreed to convert the $8.0 million investor senior loan, the outstanding balance
of  $7.0  million under the revolving credit facility plus accrued interest, and
the  $32.5 million of senior notes payable plus accrued interest, to convertible
preferred  stock,  subject  to  regulatory  and  stockholder  approval.

Effective  as  of  January 31, 2001, the Company completed the conversion of the
investor senior loan ($8.0 million), the outstanding balance under the revolving
credit  facility  ($7.0  million), the senior notes payable ($32.5 million), and
the  accrued  interest  on  the  revolving  credit facility and the senior notes
payable  ($5.3  million)  into 30 million shares of convertible preferred stock.
The  estimated  value of the convertible preferred stock was $1.375 per share as
of January 31, 2001, which is based on the closing price of the Company's common
stock  on  January  31, 2001, which was $1.375 per share, and the fact that each
share  of  convertible  preferred  stock is convertible into one share of common
stock.  The number of shares of convertible preferred stock, the estimated value
per  share,  and  the conversion ratio indicated above have all been adjusted to
reflect an exchange of the Company's outstanding shares of convertible preferred
stock  that  was completed in May 2002. See Note 15 for more information on this
exchange.

Based  on  the  estimated value of the convertible preferred stock as of January
31,  2001, the conversion transaction resulted in an extraordinary gain of $11.3
million,  which is net of approximately $350,000 of transaction costs. There was


                                      F-21
<PAGE>
no  income  tax  effect  related  to  this transaction, due to the Company's net
operating  loss  carryforwards  for  tax  purposes, as discussed in Note 13. The
Company's  deferred  tax  asset  related  to net operating loss carryforwards is
fully reserved, due to uncertainty about whether the deferred tax assets will be
realized  in  the  future,  as  discussed  in  Note  13.

See Note 15 for a description of the convertible preferred stock. As a result of
the  conversion  transaction,  the ownership interest of the previously existing
common  stockholders  of  the  Company  was  reduced to approximately 14% of the
common  stock  interests  of  the Company. In March 2000, in connection with the
recapitalization  agreement, the Company agreed to place four new directors, who
represented the Investors, the Bank, and the Senior Note Holder, on its board of
directors.  Three of those directors were placed on the board in March 2000, and
the  fourth director was placed on the board on February 8, 2001. These four new
directors  were  still  on  the  Company's board of directors as of December 31,
2002,  and they constitute a majority of the board of directors, which currently
has  a  total  of  seven  members.

In  1999,  in  connection  with a restructuring of the senior notes payable, the
Company issued warrants to purchase 382,000 shares of its common stock for $4.51
per  share  to the Senior Note Holder. The Company estimated that the fair value
of  these  warrants was $320,000, based on an option-pricing model. Accordingly,
this  amount  was charged to interest expense and credited to additional paid-in
capital  during  1999.  The  warrants  were canceled without being exercised, in
connection  with  the  conversion  of  the senior notes payable into convertible
preferred  stock  effective  January  31,  2001. Accordingly, the estimated fair
value  of  the  warrants,  which was $320,000, was debited to additional paid-in
capital  and  credited  to  retained  earnings  during  2001.

NOTE 12. OTHER LONG-TERM LIABILITIES
------------------------------------

Other  long-term  liabilities  consist  primarily  of rent expense related to an
office  lease  with  monthly  payments that increase over the term of the lease,
deferred  compensation  payments  to  a  former employee of a dental HMO company
acquired  by the Company in 1996, accrued lease obligations related to equipment
that  is  no  longer  used  by  the  Company, and security deposits collected in
connection  with  subleases.

Annual  maturities of other long-term liabilities as of December 31, 2002 are as
follows  (in  thousands):

          2004                                 $    288
          2005                                      203
          2006                                      193
          2007                                      192
          Thereafter                                137
                                               --------

            Total other long-term liabilities  $  1,013
                                               ========

NOTE 13. INCOME TAXES
---------------------

The  Company's  federal and state income tax expense (benefit) is as follows (in
thousands):

                                                 YEARS ENDED DECEMBER 31,
                                                 ------------------------
                                                   2002    2001    2000
                                                 -------  ------  -------
  Currently payable:  Federal                    $   --   $  --   $   --
                      State                          --      --       --
  Deferred:  Federal                               (670)     --       --
             State                                 (150)     --       --
                                                 -------  ------  -------

  Total income tax expense (benefit)             $ (820)  $  --   $   --
                                                 =======  ======  =======

The  income tax benefit in 2002 primarily represents a decrease in the Company's
accrual  for  estimated  income  tax liabilities related to certain transactions
that  occurred  in  prior  years, which are no longer pending as of December 31,
2002.  The Company incurred net losses for tax purposes during each of the three
years  ended



                                      F-22
<PAGE>
December  31,  2002,  primarily  due  to  temporary differences that reduced the
Company's  income  for  tax  purposes,  and  the fact that the Company's gain on
conversion  of  debt  in  2001  (see  Note 11) was not taxable. In addition, the
Company's  net  deferred  tax  assets  have been fully reserved during the three
years  ended December 31, 2002, as described below. Accordingly, the Company had
no  income  tax  expense  in  any  of  the  three years ended December 31, 2002.

A  reconciliation  of the expected federal income tax expense (benefit) based on
the  statutory rate to the actual income tax expense (benefit) is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                  --------------------------------------------------------
                                         2002                2001               2000
                                  ------------------  -----------------  -----------------
                                   AMOUNT      %       AMOUNT      %      AMOUNT      %
                                  --------  --------  ---------  ------  --------  -------
<S>                               <C>       <C>       <C>        <C>     <C>       <C>

Expected federal income tax
  expense (benefit)               $   206      34.0%  $  4,266    34.0%  $(2,194)  (34.0)%
State income tax expense
  (benefit), net of effect
  on federal income tax                23       3.7         --      --        --        --
Amortization of goodwill and
  and tangible assets                  87      14.4         35     0.3        42       0.7
Other items                            45       7.4        855     6.8        46       0.7
Decrease in income tax accrual       (820)   (135.1)        --      --        --        --
Expiration of net operating
  losses due to change of control      --        --      6,774    54.0        --        --
Change in valuation allowance        (361)    (59.5)   (11,930)  (95.1)    2,106      32.6
                                  --------  --------  ---------  ------  --------  -------
Actual income tax
  expense (benefit)               $  (820)  (135.1)%  $     --      --%  $    --       --%
                                  ========  ========  =========  ======  ========  =======
</TABLE>

Deferred  tax  assets  and  liabilities  are  related to the following items (in
thousands):

                                                          DECEMBER 31,
                                                       ------------------
                                                         2002      2001
                                                       --------  --------

Deferred tax assets:
  Net operating loss carryforward                      $ 3,690   $ 3,567
  Depreciation and amortization                          1,498     2,053
  Accrued expenses                                         948     1,121
  Capital loss carryforward                                610       643
  Other items                                              166       548
                                                       --------  --------
    Total deferred tax assets                            6,912     7,932

Deferred tax liabilities:
  State income taxes                                       321       910
  Other items                                              266       336
                                                       --------  --------
    Total deferred tax liabilities                         587     1,246
                                                       --------  --------

Net deferred tax assets                                  6,325     6,686
  Valuation allowance                                   (6,325)   (6,686)
                                                       --------  --------

    Net deferred tax assets after valuation allowance  $    --   $    --
                                                       ========  ========

The  income tax expense recorded by the Company for the years ended December 31,
2002  and  2001 includes adjustments to decrease the valuation allowance against
its  net deferred tax assets. The income tax expense recorded for the year ended
December  31,  2000  includes  an adjustment to increase the valuation allowance
against  its  net  deferred  tax  assets. The Company's net deferred tax assets,
which  were  $6.3  million  and  $6.7  million as of December 31, 2002 and 2001,
respectively,  have  been  fully  reserved  since  September  30,  1999,  due to
uncertainty  about  whether those net assets will be realized in the future. The
uncertainty  is  primarily  due  to  cumulative operating losses incurred by the
Company  during  the  period  from  January 1, 1998 to December 31, 2002 and the
existence  of  significant  net  operating  loss  carryforwards.


                                      F-23
<PAGE>
Due  to  the conversion of outstanding debt into convertible preferred stock, as
described  in  Note  11,  there  was  a  "change  of control" of the Company for
purposes  of Internal Revenue Code Section 382, effective January 31, 2001. As a
result,  effective  January  31,  2001, the amount of pre-existing net operating
loss  carryforwards  that  can  be  used to offset current taxable income on the
Company's  federal  income  tax  return is limited to approximately $350,000 per
year.  As of December 31, 2002, the Company had net operating loss carryforwards
for  federal  and  state  tax  purposes  of  approximately $9.8 million and $5.2
million,  respectively, which are net of the amounts that will expire unused due
to  the  change  of control limitation. The federal and state net operating loss
carryforwards  will  begin  to  expire  in  2020  and  2012,  respectively.

NOTE 14. COMMITMENTS AND CONTINGENCIES
--------------------------------------

LEASE COMMITMENTS

The  Company  leases  administrative  office  space and office equipment under a
number  of  operating  leases.  Rent  expense  was  $2,960,000,  $3,465,000, and
$3,986,000  in  2002,  2001,  and  2000, respectively. The Company has subleased
certain  of  its  office space to unrelated third parties, which office space is
subject to lease agreements for which the Company remains contingently liable in
the  event the sublessees fail to make the lease payments. Future minimum rental
payments  required  under non-cancelable operating leases are as follows, net of
payments  expected  to  be  received  pursuant  to  subleases  (in  thousands):

                                       TOTAL      EXPECTED       NET
                                       LEASE      SUBLEASE      LEASE
                                    OBLIGATION    PAYMENTS   OBLIGATION
                                    -----------  ----------  -----------
          2003                      $     2,288  $    (443)  $     1,845
          2004                            2,302       (183)        2,119
          2005                            2,067         (9)        2,058
          2006                            1,842         --         1,842
          2007                            1,838         --         1,838
          Thereafter                      1,838         --         1,838
                                    -----------  ----------  -----------

            Total minimum payments  $    12,175  $    (635)  $    11,540
                                    ===========  ==========  ===========

The  Company  has  accrued  all  of the future lease payments related to certain
leases for equipment that is no longer used by the Company. The Company has also
accrued  the  excess  of  the  future lease payments for office space that is no
longer  used  by  the  Company, over the expected future collections of sublease
payments  related  to that office space. These accruals are included in "accrued
expenses"  on  the  accompanying  consolidated  balance sheets. The future lease
payments  that  have  been  accrued  are  not  included  in the above summary of
operating  lease  commitments.

LITIGATION

The  Company  is  subject  to  various  claims  and legal actions arising in the
ordinary  course of business. The Company believes all pending claims either are
covered  by  liability insurance maintained by the Company or by dentists in the
Company's  provider  network,  or will not have a material adverse effect on the
Company's  consolidated  financial  position  or  results  of  operations.

In  December  1999,  a  stockholder lawsuit against the Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  During  2002  the  Company  reached an agreement with the plaintiffs to
settle  the lawsuit for a payment of $1.25 million to the plaintiffs, without an
admission  of  liability by any party. The agreement between the Company and the
plaintiffs  was  approved by the District Court in September 2002. The Company's
insurer  paid  $1.0  million  of  the  cost  of the settlement. Accordingly, the
Company recorded a $250,000 expense during the three months ended June 30, 2002,
which  is  included  in  selling,  general  and  administrative  expenses in the
accompanying  consolidated  statement  of  operations.


                                      F-24
<PAGE>
CONTINGENT LEASE OBLIGATIONS

The  Company  sold all of its general dental practices and orthodontic practices
in 1996, 1997 and 1998, as discussed in Note 3. The Company also re-sold certain
of  these practices in October 2000, after the original purchaser of a number of
these  practices  defaulted  on  its obligations to the Company, as discussed in
Note  3. The office lease agreements related to all of the practices sold by the
Company either have been assigned to the respective purchasers of the practices,
or  have  expired.

In  the  case  of the assigned leases, the Company is secondarily liable for the
lease  payments  in the event the purchasers of those practices fail to make the
payments.  As  of  December  31,  2002, the total of the minimum annual payments
under  these leases was approximately $1.5 million, and the aggregate contingent
liability  of the Company related to these leases was approximately $3.3 million
over  the  terms  of the lease agreements, which expire at various dates through
2007.  In  the  event that the parties to which these lease agreements have been
assigned  defaulted  on  the  leases,  the  aggregate  contingent  liability  of
approximately  $3.3  million could be mitigated by the Company by subleasing the
related  office  space  to  other parties, although there can be no assurance it
would  be able to do so. The Company has not been notified of any defaults under
these  leases  that  would  have a material effect on the Company's consolidated
financial  position.  The  aggregate contingent lease obligation of $3.3 million
excludes  $100,000  of  estimated lease obligations that have been accrued as of
December 31, 2002, due to an expected failure by one of the entities to make the
lease  payments  under  a lease that was assigned to that entity by the Company.
This  estimated  lease  obligation  is included in the accompanying consolidated
balance  sheet  under  the  caption  "Accrued  expenses."

GUARANTEES AND INDEMNITIES

As  discussed above, the Company has contingent lease obligations under which it
is  secondarily  liable  for  the lease payments under dental office leases that
have  been  assigned  to third parties. In the event those third parties fail to
make  the  lease  payments,  the  Company  could  be obligated to make the lease
payments  itself.  The  Company has purchased a letter of credit for $250,000 in
connection  with a certain customer agreement. In the event the Company fails to
meet  its  financial  obligations to the customer, the customer would be able to
use the letter of credit to satisfy the Company's obligations, in which case the
Company  would  be  obligated  to  repay the issuer of the letter of credit. The
Company  also  indemnifies  its  directors  and  officers  to the maximum extent
permitted  by  Delaware  law.  In addition, the Company makes indemnities to its
customers  in connection with the sale of dental and vision benefit plans in the
ordinary  course  of  business.  The maximum amount of potential future payments
under  all of the preceding guarantees and indemnities cannot be determined. The
Company  has recorded no liabilities related to these guarantees and indemnities
in the accompanying consolidated balance sheets, except as described above under
"Contingent  Lease  Obligations."

EMPLOYMENT AGREEMENT COMMITMENTS

The  Company  has an employment agreement with one of its senior officers, which
expires  on  August  30,  2005,  and has severance agreements with several other
officers  of  the  Company,  which  continue for as long as each officer remains
employed  by  the  Company.  In  the  event  there is a change in control of the
Company,  each  officer  would  receive  a  severance  payment  under  certain
circumstances,  which  is  equal to that officer's annual salary then in effect,
plus  the  amount  of  the bonus, if any, earned by the officer for the previous
calendar  year.  The maximum aggregate commitment under the employment agreement
and  the  severance  agreements is approximately $2.4 million as of December 31,
2002.  None  of  the  future  commitments  under the employment agreement or the
severance  agreements  are accrued as of December 31, 2002, as these commitments
are  all related to services to be performed by the officers subsequent to 2002.

EMPLOYEE RETIREMENT PLAN

The  Company  maintains  a  retirement plan under Section 401(k) of the Internal
Revenue  Code  (the  "Plan").  Under  the  Plan, employees are permitted to make
contributions  to  a  retirement account through payroll deductions from pre-tax
earnings.  Employees  are  fully  vested  in  contributions  made  from  payroll
deductions.  In  addition,  the  Company may, at its discretion, make additional
contributions  to  the  Plan.  The  Company made $87,000 and $51,000 of matching
contributions  to  the  Plan  for  the  years  ended December 31, 2002 and 2001,
respectively,  in  the  form  of  66,000  shares and 33,000 shares of its common
stock,  respectively.  Of  the total of 66,000 shares of common stock related to


                                      F-25
<PAGE>
2002,  51,000  shares  were contributed in 2002, and an additional 15,000 shares
were  contributed in 2003, the value of which is included in accrued expenses as
of  December  31, 2002. Employees become vested in the matching contributions at
the  rate  of  20%  per  year during the first five years of employment with the
Company, with employees receiving credit for past years of service. There are no
restrictions on the ability of employees to liquidate the Company's common stock
that  is credited to their account, except for vesting requirements. The Company
made  no  contributions  to  the  Plan  during the year ended December 31, 2000.

PROFESSIONAL LIABILITY INSURANCE

The  Company  maintains professional liability insurance that covers losses on a
claims-made  basis.  The  Company's  professional  liability  insurance  policy
provides  $5  million  of  coverage and has an aggregate deductible of $250,000.

GOVERNMENT REGULATION

The dental benefits industry is subject to extensive state and local laws, rules
and  regulations.  Each  of  the  Company's operating subsidiaries is subject to
various  requirements  imposed  by  state  laws  and  regulations related to the
operation  of  a  dental  HMO  plan or a dental insurance company, including the
maintenance  of  a  minimum  amount  of  net  worth  by certain subsidiaries and
compliance  with numerous other financial requirements. In addition, regulations
applicable  to dental benefit plans could be changed in the future. There can be
no  assurance  that  the  Company will be able to meet all applicable regulatory
requirements  in  the  future.

As  of  December 31, 2002 and 2001, one of the Company's subsidiaries, which had
an  insignificant amount of revenue in 2002 and 2001, was not in compliance with
the  applicable  regulatory  net worth requirement. The Company has not invested
the  required  funds in this subsidiary because the Company is in the process of
closing  that  subsidiary's  business,  and the Company has received a waiver of
compliance  from  the  applicable  regulatory  agency.  During  the  years ended
December  31, 2002, 2001 and 2000, another of the Company's subsidiaries was not
in  compliance  with  a  regulatory  requirement  that  limits the amount of the
subsidiary's  administrative  expenses  as  a percentage of premium revenue. The
Company  has discussed this noncompliance with the applicable regulatory agency,
and  that  agency  has  taken  no action with respect to this noncompliance. The
Company  believes  these  two  instances  of  noncompliance  with  regulatory
requirements  will  have  no  significant  effect  on its consolidated financial
statements.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 ("HIPAA")

HIPAA  imposes  responsibilities  on  the Company, including but not limited to,
privacy  notice  requirements  to  members  of  the Company's benefit plans, the
security and privacy of individually identifiable health information, the use of
unique identifiers for all of the contractual relationships the Company has with
members,  providers  and  group and individual contract holders, the adoption of
standardized  electronic  transaction  code sets, and prevention of unauthorized
use  or disclosure of personal data maintained by the Company. The Company is in
the  process  of  developing  policies  and  procedures  to  comply  with  these
requirements  and  has  provided  privacy  notices  as required by HIPAA and the
Gramm-Leach-Bliley  Act. The total cost of compliance with HIPAA is not known at
this  time.

LIABILITIES RELATED TO DENTAL AND ORTHODONTIC PRACTICES

The  Company  has  various  liabilities  in  connection  with  the  dental  and
orthodontic  practices  sold  in  October  2000  (see Note 3), including but not
limited to, the obligation to complete orthodontic treatments for certain dental
HMO patients who previously paid for the treatments in full. The amount of these
liabilities  is  subject to uncertainties and there can be no assurance that the
ultimate  amount of these liabilities will not exceed the amounts accrued on the
Company's  consolidated  balance  sheet  as  of  December  31,  2002.

CONCENTRATIONS OF CREDIT RISK

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  primarily  of  bank  deposits,  investments  and accounts
receivable.  As  of  December  31, 2002, the Company had bank deposits that were
approximately  $4.0  million in excess of the maximum amounts insured by Federal
Deposit  Insurance  Corporation.  The  Company's investments consist entirely of
high-quality  marketable  securities.


                                      F-26
<PAGE>
NOTE 15. CAPITAL STOCK
----------------------

CONVERTIBLE PREFERRED STOCK

The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred  stock is convertible into one share of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining two directors. In the aggregate, the convertible preferred
stock  has a $30 million liquidation preference over the Company's common stock.

Prior  to  May  2002,  there  were 300,000 shares of convertible preferred stock
issued  and  outstanding.  Each  share had a par value of $100 and a liquidation
preference  of $100, and was convertible into 100 shares of the Company's common
stock.  In  May  2002, each outstanding share of convertible preferred stock was
exchanged  for  100 new shares of convertible preferred stock. Each new share of
convertible  preferred  stock  has  a  par  value  of  $1.00  and  a liquidation
preference  of  $1.00, and is convertible into one share of the Company's common
stock.  All  other  rights  and  preferences  of the convertible preferred stock
remained  the  same.  All  references  to the convertible preferred stock in the
accompanying  consolidated  financial  statements  reflect  the  effects of this
exchange  on  a  retroactive  basis.

STOCK REPURCHASES

As  of  December  31,  2002, the Company had 3,216,978 shares of treasury stock,
which  were  acquired  by  the  Company  for  an  aggregate of $17.8 million. In
December  2000,  the  board of directors of the Company authorized management to
repurchase  up  to  500,000 shares of the Company's outstanding common stock, of
which  10,000  shares  had  been  repurchased  as  of  December  31,  2002.

STOCKHOLDER RIGHTS PLAN

In  March 1996, the board of directors of the Company declared a dividend of one
right  to  purchase  a  fraction of a share of its Series A Junior Participating
Preferred  Stock,  having  rights,  preferences,  privileges and restrictions as
designated,  and  under  certain  circumstances,  other  securities,  for  each
outstanding share of the Company's common stock (the "Rights"). The dividend was
distributed  to  stockholders  of  record  at the close of business on April 12,
1996.  The  Rights  become  exercisable  upon  the occurrence of certain defined
events  related  to a possible change of control of the Company. The description
and  terms  of the Rights are set forth in a Rights Agreement, dated as of March
22,  1996, as amended, between the Company and American Stock Transfer and Trust
Company,  as  Rights Agent. The Rights Agreement may be amended by the Company's
board of directors without the approval of the Rights holders, at any time prior
to  the  Rights  becoming exercisable. The Rights Agreement was amended in March
2000  to  specify  that the recapitalization transaction initiated in March 2000
would  not  cause  the  Rights  to  become  exercisable.

STOCK OPTION PLAN

The Company has a stock option plan (the "Plan") that authorizes the granting of
both  incentive  and  non-qualified  stock  options  to purchase an aggregate of
3,600,000  shares  of  common  stock.  Either  incentive  or non-qualified stock
options may be granted to executive officers and other employees of the Company.
Only non-qualified stock options may be granted to non-employee directors of the
Company.  Under the Plan, the exercise price of any stock option granted must be
at least equal to the market value of the Company's common stock on the date the
option  is  granted. The Compensation and Stock Option Committee of the board of
directors  of  the  Company  administers  the  Plan.


                                      F-27
<PAGE>
The following is a summary of stock options outstanding as of December 31, 2002:

<TABLE>
<CAPTION>
                                      TOTAL STOCK OPTIONS OUTSTANDING           STOCK OPTIONS EXERCISABLE
                               -----------------------------------------------  --------------------------
                  RANGE OF                        WEIGHTED        WEIGHTED                    WEIGHTED
                  EXERCISE        NUMBER           AVERAGE         AVERAGE        NUMBER       AVERAGE
                   PRICES        OF SHARES      REMAINING LIFE  EXERCISE PRICE  OF SHARES   EXERCISE PRICE
               --------------  --------------  ---------------  --------------  ----------  --------------
<S>            <C>             <C>             <C>              <C>             <C>         <C>
               $ 1.00 -  1.50       2,712,834       7.90 years  $         1.11   1,306,142  $         1.05
                 9.00 - 11.88          12,000       2.73 years           10.73      12,000           10.73
                    15.75               1,000       3.22 years           15.75       1,000           15.75
                               --------------                                   ----------

                    Total           2,725,834       7.88 years  $         1.15   1,319,142  $         1.15
                               ==============                                   ==========
</TABLE>

The following is a summary of activity in stock options:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                          -------------------------------------
                                                             2002         2001         2000
                                                          -----------  -----------  -----------
<S>                                                       <C>          <C>          <C>
  Outstanding at beginning of year                         2,614,500    2,216,300      755,300
  Stock options granted                                      404,500      805,000    2,080,000
  Stock options exercised                                    (48,332)     (43,332)          --
  Stock options canceled                                    (244,834)    (363,468)    (619,000)
                                                          -----------  -----------  -----------

  Outstanding at end of year                               2,725,834    2,614,500    2,216,300
                                                          ===========  ===========  ===========

  Exercisable at end of year                               1,319,142      616,107      105,966

  Weighted average exercise price of options granted      $     1.24   $     1.26   $     1.00
  Weighted average exercise price of options exercised          1.00         1.00           --
  Weighted average exercise price of options canceled           1.16         3.81         9.96
  Weighted average exercise price of options outstanding        1.15         1.14         1.53
  Weighted average exercise price of options exercisable        1.15         1.23        10.39
</TABLE>


                                      F-28
<PAGE>
NOTE 16. INVESTMENT AND OTHER INCOME
------------------------------------

Investment and other income consist of the following (in thousands):

                                               YEARS ENDED DECEMBER 31,
                                               ------------------------
                                                2002    2001     2000
                                               ------  -------  -------
  Investment income, including realized gains  $  318  $ 1,046  $ 1,348
  Other income, net                               289       14       83
                                               ------  -------  -------

    Total investment and other income          $  607  $ 1,060  $ 1,431
                                               ======  =======  =======

NOTE 17. UNAUDITED SELECTED QUARTERLY INFORMATION
-------------------------------------------------

FOURTH QUARTER ADJUSTMENTS

During  the  fourth quarter of 2002, the Company recorded an $820,000 income tax
benefit,  which  primarily  represents  a  decrease in the Company's accrual for
estimated  income  tax liabilities related to certain transactions that occurred
in  prior years, as discussed in Note 13. During the fourth quarter of 2002, the
Company  also increased the bad debt reserve on its notes receivable by $334,000
to  reduce  the  carrying  value  of  those  notes to their estimated realizable
values.


                                      F-29
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

Unaudited  quarterly results of operations for the years ended December 31, 2002
and 2001 are shown below (in thousands, except per share data). This information
has  been  prepared on the same basis as the accompanying consolidated financial
statements  for  the  years  ended December 31, 2002 and 2001, and all necessary
adjustments,  which  consist  only  of  normal  recurring adjustments, have been
included  in  the quarterly results of operations below. The unaudited quarterly
results should be read in conjunction with the accompanying audited consolidated
financial  statements.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31, 2002
                                                ------------------------------------------
                                                  FIRST     SECOND      THIRD     FOURTH
                                                 QUARTER    QUARTER    QUARTER    QUARTER
                                                ---------  ---------  ---------  ---------
<S>                                             <C>        <C>        <C>        <C>
  Premium revenue, net                          $ 20,688   $ 20,174   $ 20,682   $ 21,499
  Health care services expense                    14,550     14,676     14,546     14,165
  Selling, general and administrative expense      5,839      5,777      6,040      6,884
  Loss on impairment of assets                        --         --         --        334
                                                ---------  ---------  ---------  ---------

  Operating income (loss)                            299       (279)        96        116

  Investment and other income                        116        103         92        296
  Interest expense                                    (7)       (24)       (84)      (117)
                                                ---------  ---------  ---------  ---------

  Income (loss) before income taxes                  408       (200)       104        295
  Income tax expense                                  --         --         --       (820)
                                                ---------  ---------  ---------  ---------

    Net income (loss)                           $    408   $   (200)  $    104   $  1,115
                                                =========  =========  =========  =========

  Basic net income per share                    $   0.01   $  (0.01)  $   0.00   $   0.03
  Weighted average basic shares outstanding       34,812     34,857     35,161     35,677

  Diluted net income per share                  $   0.01   $  (0.01)  $   0.00   $   0.03
  Weighted average diluted shares outstanding     35,568     34,857     35,526     36,010
</TABLE>


                                      F-30
<PAGE>
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 2001
                                                ------------------------------------------
                                                  FIRST     SECOND      THIRD     FOURTH
                                                 QUARTER    QUARTER    QUARTER    QUARTER
                                                ---------  ---------  ---------  ---------
<S>                                             <C>        <C>        <C>        <C>
  Premium revenue, net                          $ 21,643   $ 21,452   $ 20,831   $ 20,896
  Health care services expense                    15,187     14,914     14,456     14,135
  Selling, general and administrative expense      6,534      6,453      6,062      6,342
                                                ---------  ---------  ---------  ---------

  Operating income (loss)                            (78)        85        313        419

  Investment and other income                        435        255        213        157
  Interest expense on debt that was
    converted to equity in 2001                     (402)        --         --         --
  Other interest expense                             (32)       (30)       (31)        (9)
                                                ---------  ---------  ---------  ---------
  Income (loss) before income taxes
    and extraordinary item                           (77)       310        495        567
  Income tax expense                                  --         --         --         --
                                                ---------  ---------  ---------  ---------

  Income (loss) before extraordinary item            (77)       310        495        567
  Extraordinary item:
    Gain on conversion of debt to
      convertible preferred stock                 11,251         --         --         --
                                                ---------  ---------  ---------  ---------

    Net income                                  $ 11,174   $    310   $    495   $    567
                                                =========  =========  =========  =========

  Basic net income per share:
    Income before extraordinary item            $     --   $   0.01   $   0.01   $   0.02
    Extraordinary item                              0.45         --         --         --
                                                ---------  ---------  ---------  ---------

    Net income                                  $   0.45   $   0.01   $   0.01   $   0.02
                                                =========  =========  =========  =========

  Weighted average basic shares outstanding       24,738     34,740     34,753     34,781

  Diluted net income per share:
    Income before extraordinary item            $     --   $   0.01   $   0.01   $   0.02
    Extraordinary item                              0.45         --         --         --
                                                ---------  ---------  ---------  ---------

    Net income                                  $   0.45   $   0.01   $   0.01   $   0.02
                                                =========  =========  =========  =========

  Weighted average diluted shares outstanding     24,738     35,502     35,542     35,564
</TABLE>

NOTE 19. SUBSEQUENT EVENT
-------------------------

In  January 2003, the Company entered into a definitive agreement to acquire all
of  the outstanding stock of Ameritas Managed Dental Plan, Inc. ("Ameritas") for
$1.1  million  in cash, subject to regulatory approval. Ameritas is a dental HMO
company  with approximately $4 million of annual revenue and is located in Costa
Mesa,  California.  The  Company expects to complete this transaction during the
first  half  of  2003,  although  it  is  still  subject to regulatory approval.

During January 2003, the Company implemented a Retention Bonus Plan (the "Plan")
with  respect  to  certain  senior executives of the Company. The purpose of the
Plan  is  to  provide  an  incentive for the senior management of the Company to
remain  employed  during a reasonable transition period in the event of the sale
of  the Company to a third party. In the event that more than 50% of the Company
is sold to an entity that is not otherwise a current stockholder of the Company,
each  eligible officer would receive a variable retention bonus that is based on
the  amount  of  proceeds  from  the  sale  transaction. The aggregate amount of
retention bonuses paid by the Company under the Plan would be approximately $1.3
million  for  each  $1.00  of proceeds per share of common stock realized by the
Company's  stockholders  in  a  sale  of  the  Company.


                                      F-31
<PAGE>
<TABLE>
<CAPTION>
                         SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                             SCHEDULE II
                                  VALUATION AND QUALIFYING ACCOUNTS
                            YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
                                            (IN THOUSANDS)


                                  BALANCE AT   CHARGED TO   CHARGED TO                  BALANCE AT
                                   BEGINNING    COSTS AND      OTHER                       END
                                    OF YEAR     EXPENSES     ACCOUNTS     WRITE-OFFS     OF YEAR
                                  -----------  -----------  -----------  ------------  -----------
<S>                               <C>          <C>          <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 2000:

Allowance for doubtful accounts:
  Accounts receivable             $     1,054  $       300  $        --  $      (486)  $       868
  Long-term notes receivable      $     3,839  $       450  $        --  $    (1,483)  $     2,806

YEAR ENDED DECEMBER 31, 2001:

Allowance for doubtful accounts:
  Accounts receivable             $       868  $       245  $        --  $      (605)  $       508
  Long-term notes receivable      $     2,806  $        --  $        --  $    (2,339)  $       467

YEAR ENDED DECEMBER 31, 2002:

Allowance for doubtful accounts:
  Accounts receivable             $       508  $       220  $        --  $      (403)  $       325
  Long-term notes receivable      $       467  $       334  $        --  $        --   $       801
</TABLE>


                                      F-32
<PAGE>